Understanding the 6-Year Rule: When Your Home Stays Tax-Free After You Move Out

Most Australians assume the main residence exemption is simple:
“If it is my home, the gain is tax-free.”

But life is rarely that tidy. People move for work. Families grow. Sometimes you need to rent out your home for a while before moving back or before selling. This is where one of Australia’s most useful tax rules comes in, a rule many people have heard about but never fully understood: the 6-year rule.

It is a rule that can save homeowners thousands in capital gains tax, yet it is often misunderstood or applied incorrectly.

Let us break the rule down in a clear, human way and see how it actually works in real life.

A Simple Story: Why This Rule Exists

A client once told me:

“We had to move interstate for work. Our home sat empty for weeks, so we rented it out. Someone later told me I might have to pay tax when I sell it. That scared me.”

Her experience is common.

The Australian tax system recognises that life changes. You might need to move somewhere else temporarily. You might rent your home out for a year, or three, or six, before you return.

The 6-year rule exists to give people flexibility when life does not follow a straight line.

What the 6-Year Rule Actually Says (in Plain English)

Once you move out of your home and start using it to produce income usually by renting it, you can continue to treat it as your main residence for up to six years. If you sell it within that six-year window, your capital gain can still be fully exempt, even though you were not living in it.

But there are three important conditions.

Condition 1: The property must have been your main residence first. You must have genuinely lived in the home before moving out.
Condition 2: You cannot treat any other property as your main residence during that time. For tax purposes, you only get one “main residence” at a time (with some limited exceptions).
Condition 3: The six years apply only while the home is income-producing. If it is vacant and not earning rent, the time does not count towards the six years.
If you move back in, the clock resets.

If you move out again and rent it, a new six-year period can begin.

That is the entire rule.

How the rule helps

Let us look at how this plays out in real life.

Emma bought her first home in 2018 and lived in it for four years. In early 2022, she accepted a job interstate and moved out. She was unsure whether she would return, so she kept the home vacant for a few months while deciding what to do.

By July 2022, she made the home available for rent and it was leased shortly after. Under the 6-year rule, what matters is not the day she moved out. It is the day the property was first genuinely available for rent. That is when the “absence period” officially starts. So even though the home sat vacant for several months, those months did not count toward the 6-year limit. The clock only began when the property entered the rental market.

A few years later, Emma decided to sell while still renting elsewhere. Because she had lived in the home before she left, and because the time from “first available for rent” to sale was within six years, the entire gain remained exempt from capital gains tax.

The home stayed tax-free, even though she no longer lived there.

Where People Often Get Confused

1. “Do I have to move back in?”
   No. Moving back in is optional. You can sell it while renting as long as it is within six years.
2. “What if I buy another home?”
   If you claim your new home as your main residence, you stop the clock on the old one. You cannot double-claim.
3. “Does the six years have to be continuous?”
   Only the rental period counts. If the home is empty (as in it is not advertised or made available for rent), the six-year timer pauses.
4. “If I move back in, do I get another six years?”
   Yes, moving back in resets the rule. This is one of the most powerful parts of the exemption.

The Rule in One Sentence

If you move out of your home and rent it, you can still treat it as your main residence for capital gains tax purposes for up to six years and if you move back in, the clock resets.

Practical Things to Keep in Mind

You should keep good records of:
• the dates you moved in and out
• rental periods
• when you lived elsewhere
• when you moved back (if you did)

These dates matter years later when you sell. And while the 6-year rule is generous, the main residence exemption is still one of the most valuable tax concessions Australians receive, so the ATO expects accuracy.

Final Thought

The 6-year rule is not about tax. It is about flexibility. It is for people whose lives change (jobs, kids, relationships, opportunities and so on).

It is for Australians who need to move but do not want to lose the tax benefit of owning their home.

Knowing this rule can give you options when life forces a decision you did not expect. And as part of your wealth story, understanding these rules can shape long-term outcomes in ways that feel small today but meaningful later.

If you are planning a move, renting your home, or thinking of selling, understanding your timelines could save you a significant amount of money and give you confidence that you are making the right decision for your future.