For most Australians, the family home is the single most tax-advantaged asset they will ever own - fully exempt from capital gains tax, with no cap on the gain. The main residence exemption is confirmed unchanged by the 2026 Budget, which makes it more valuable than ever as other assets face tighter CGT rules.
But the exemption is not all-or-nothing. Where a property has been rented out, a partial exemption applies - and the calculation catches a great many investors who assumed their home would stay CGT-free.
Turned your home into a rental, or thinking about it? A short conversation now can protect a large slice of your future capital gain.
Book a Free Consultation →The 6-Year Rule
The absence rule - commonly called the 6-year rule - allows you to keep treating a former home as your main residence for up to 6 years after you move out, even while it earns rental income. During that period the property stays exempt from CGT, exactly as if you were still living in it.
The key condition: you cannot treat another property as your main residence at the same time (with a limited 6-month overlap allowed when you are moving house). So the rule suits someone who moves out, rents their home, and rents or stays elsewhere - rather than someone who buys a new home to live in.
The Clock Resets
If you move back into the property and genuinely re-establish it as your main residence, a fresh 6-year period can open for a later absence. This gives real flexibility to people who cycle between locations. But the reset depends on genuine reoccupation - moving furniture back for a token period will not satisfy the ATO. A vacant former home, by contrast, can be treated as your main residence indefinitely; the 6-year clock only runs while the property is actually producing income.
Where the Partial Exemption Catches People
If you rent the property for longer than 6 years in a single absence, you lose the exemption for the period beyond 6 years. CGT then applies to a proportion of the gain, calculated on a time basis: the days over the limit divided by the total days of ownership gives the taxable fraction. The 50% CGT discount can apply to that fraction if you have owned the property for more than 12 months.
There is a further trap. When a main residence is first used to produce income, the "home first used to produce income" rule generally resets the cost base to the property's market value at that date - not the original purchase price. This changes the gain calculation significantly, and getting a valuation at the right time is essential. Many investors do not obtain that valuation and find the gain calculated on a much lower cost base years later.
The Non-Resident Trap
Since 30 June 2020, a person who is a non-resident for tax purposes at the time of sale generally cannot claim the main residence exemption at all - even if the 6-year rule would otherwise apply. If you are moving overseas, this needs to be worked through before you leave, not after you return.
How Phan Campbell & Associates Can Help
At Phan Campbell & Associates in Footscray, our accounting team advises property owners across Melbourne and Victoria on the main residence exemption, the 6-year rule, and the partial exemption calculation - including the valuation timing that so often gets missed.
Because we are a combined legal and accounting firm, we handle both the tax analysis and the conveyancing when you buy or sell. If you are turning a home into a rental, or selling one you have rented, get the position right before the CGT event.
Frequently Asked Questions
1. What is the CGT 6-year rule?
It lets you treat a former home as your main residence for up to 6 years after moving out while renting it - keeping it CGT-exempt, as long as you do not treat another property as your main residence.
2. Does the 6-year clock reset?
Yes - if you move back in and genuinely re-establish the property as your main residence, a new 6-year period can begin for a later absence. Token reoccupation does not count.
3. What happens if I rent my home out for more than 6 years?
You lose the exemption for the period beyond 6 years and pay CGT on a proportion of the gain, calculated by days over the limit divided by total days of ownership.
4. How is the partial exemption calculated?
The cost base is generally reset to market value when the home was first used to produce income, then the taxable fraction is apportioned. This is where many get caught - book a free consultation with Phan Campbell & Associates.