What is the six year rule for capital gains tax on your home in Australia?
The "six-year rule" allows you to treat a former home as your main residence for Capital Gains Tax (CGT) purposes for up to six years after moving out, even if you rent it out. This means you won't pay CGT if you sell it within that period, provided no other property is claimed as your main residence.
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How it works in practice
Understanding the Six-Year Rule
The "six-year rule" in Australia is a key provision under Capital Gains Tax (CGT) law that allows you to continue treating a property as your main residence even after you have moved out and started renting it to others. This exemption helps property owners avoid CGT liability on the sale of a former home, provided certain conditions are met.
How it Works
If you move out of your home, but initially used it as your main residence, you can continue to treat it as such for up to six years, even if you rent it out. This means that any capital gain made on the sale of the property within that six-year period can be fully or partially exempt from CGT. The purpose of this rule is to provide flexibility for individuals who need to move for work or other reasons but intend to return or sell the property without immediate CGT consequences.
Important exceptions
The six-year rule is subject to important conditions. It only applies if the property was your main residence immediately before you started renting it out.
Crucially, you cannot claim any other property as your main residence for CGT purposes during the period you are applying the six-year rule to your former home. If you move into a new home and treat it as your main residence, the exemption on the old home ceases.
The six-year period applies per absence. If you move back in and then move out again, a new six-year period can begin, provided you re-establish it as your main residence. If your absence exceeds six years, CGT will apply proportionately to the period beyond six years.
What you should do now
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Ensure the property was genuinely your main residence before you moved out and started renting it.
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Keep meticulous records of all dates of occupancy, rental periods, and any other main residences owned.
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Be aware that you cannot claim another property as your main residence while applying the six-year rule to your former home.
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If renting out the property, ensure you declare all rental income and claim eligible deductions.
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Consult a registered tax agent or financial advisor for personalised advice regarding your specific circumstances.
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