CGT
The Six-Year Absence Rule: What It Does—and What It Does Not D
Overview
The rule can continue main residence treatment after moving out, but it is elective, conditional and subject to the foreign-resident disposal restriction.
An individual can choose to continue treating a former home as their main residence after moving out. Where the property is used to produce income, the continuing period is generally limited to six years for each qualifying absence. Where it is not used to produce income, the law does not impose the same six-year limit.
The rule is sometimes described as an automatic exemption. It is instead part of the main residence provisions and interacts with other homes, partial exemptions, the market-value rule and foreign-resident restrictions.
Income-producing use
Renting the former home starts the relevant six-year period. If the taxpayer moves back in and re-establishes it as a main residence before later moving out again, a new absence period may become available.
Brief occupation arranged solely to manufacture a result may be scrutinised. Evidence should show genuine residential use.
No income-producing use
Where the home is left vacant and not used to produce income, it can generally continue to be treated as the main residence indefinitely under the absence choice, provided the other conditions are satisfied.
Deduction treatment is a separate issue. A vacant property retained for private reasons does not generate rental deductions merely because main residence treatment continues.
Another main residence
A person generally cannot choose two properties as the main residence for the same period, apart from limited overlap when changing homes and spouse rules. Choosing the former home can reduce the exemption available on a later home.
The optimal allocation may require comparing both properties rather than deciding year by year without a complete model.
Home first used to produce income
Where a main residence is first used to produce income after 20 August 1996, a market-value rule can reset the acquisition basis in certain circumstances. A contemporaneous valuation may be critical.
The rule does not apply in every partial-exemption case, so the factual sequence must be checked.
Foreign-resident limitation
Even where the six-year absence conditions are satisfied, an individual who is a foreign resident at the disposal time can generally be denied the main residence exemption unless the life-events test applies.
This restriction is often the decisive issue for expatriate owners.
Practical takeaway
Track actual occupation, rental commencement, return periods, other homes, spouse choices and residency at disposal. The six-year rule is one component of the calculation, not the whole answer.
Official sources and further reading
- Australian Taxation Office: Treating a former home as your main residence
- Australian Taxation Office: Main residence exemption for foreign residents
- Australian Taxation Office: Holiday homes
- Australian Taxation Office: Your tax residency
CGT
