The CGT Six-Year Rule and Your Aussie Home: What Expats Must Know Before Selling

You own a home in Australia, a job overseas has come up, and you’re weighing whether to rent the place out while you’re gone. Sensible question. And somewhere along the way you’ve probably heard about the “six-year rule,” the one that lets you rent out your old home and still sell it free of capital gains tax. It sounds like a beautiful little loophole, and for Australian residents it genuinely is.

But here’s the part that has blindsided a lot of expats, and it’s important enough that I’m going to put it right up the top rather than bury it politely at the end: if you sell while you’re a foreign resident for tax purposes, you may get none of it. Not a reduced exemption. None, unless one narrow exception applies. The rules changed, and the change was brutal for Australians living overseas. So before you rely on the six-year rule, you need to understand the one thing that now decides everything.

The rule that matters most: your residency on the day you sell

For contracts entered into after 30 June 2020, your eligibility for the main residence exemption is decided by your tax residency at the time of the CGT event. For a standard property sale, that’s usually the date you sign the contract, not settlement. Tax law has many moving parts. This one is a tripwire.

If you’re a foreign resident on the day you sign the contract to sell, you’re generally not entitled to the main residence exemption at all, unless the narrow life events test applies. And for ordinary post-CGT property, there’s usually no friendly apportioning for the years you lived there as an Australian resident. It doesn’t matter that the place was your home for fifteen years and you were overseas for two. The law can tax the gain as if the main residence exemption never existed. Cold? Yes. Surprising? Also yes. Optional? Sadly, no.

Pre-CGT property, broadly property acquired before 20 September 1985, is a different story, and so are cases that satisfy the life events test. But for most expats selling a former Australian home from overseas, the contract-date residency question is the whole show.

This is the trap. People remember the “rent it out for six years, sell, pay nothing” line, move overseas, become foreign residents, sell from abroad, and discover the exemption has evaporated. Same house, same six years, completely different result, all because of where they were tax-resident on contract day. The ATO’s guidance for foreign residents spells it out.

How the six-year rule actually works (and who it still works for)

Let’s back up and explain the rule properly, because it hasn’t been abolished, it’s just been quietly fenced off from foreign residents.

The main residence exemption normally needs the property to actually be your home. The “absence rule” in section 118-145 of the Income Tax Assessment Act 1997 is the exception that lets you keep treating a former home as your main residence after you’ve moved out. The headline numbers:

• If you rent the property out, you can keep treating it as your main residence for up to six years per absence.
• If you leave it vacant, or let a family member live there rent-free, you can keep treating it as your main residence indefinitely, with no time limit at all.
• You can only have one main residence at a time (with a small overlap rule when you’re moving between homes), so you can’t claim this on the old place and a new place for the same period.
• Move back in and genuinely re-establish it as your home, and the six-year clock can reset for a fresh absence later.

There’s a boring but important starting point: the property must actually have been your main residence first. Not “I planned to live there.” Not “I stored a mattress there for tax reasons.” Your facts need to show it was genuinely your home. The ATO looks at things like whether you lived there, moved your belongings in, connected the services, changed your address, and treated the place like home rather than a tax costume.

When it applies, the absence rule is powerful: sell within the covered period and the main residence exemption can wipe the gain entirely. But for expats, the rule now comes with a locked gate. If you’re a foreign resident when the sale contract is signed, the absence rule will usually have no practical effect unless you satisfy the narrow life events test. The six-year clock may still be sitting there ticking. It just might not be connected to the tax bill.

If you rent it out for more than six years

What if you rent the home out for more than six years, then sell while you’re an Australian resident again? Different story. The six-year rule may still cover the first six years of that absence, but the period beyond that can become taxable, worked out on a proportional basis.

Here’s where a rule with a clunky name can matter a lot: the “home first used to produce income” rule in section 118-192. Broadly, if the home was fully covered by the main residence exemption right up until you first rented it out, you can be taken to have acquired it at its market value on the day it first became income-producing. That resets your cost base, often substantially, and it’s frequently the difference between a modest CGT bill and an ugly one. The practical lesson: get a market valuation when you first rent the place out. It’s the tax equivalent of keeping the receipt, except the receipt is a valuation report and tends to cost a bit more.

One important limit: this rule is mainly part of the resident-seller calculation. It doesn’t rescue a foreign resident who’s denied the main residence exemption altogether, because it only operates where a partial exemption would otherwise be available. Same house, different residency, different answer. Delightful, in the way only CGT can be.

So what are an expat’s real options?

This is where planning earns its keep, because the difference between getting the timing right and wrong can be a six-figure tax bill. Broadly, there are three ways an expat keeps the exemption in play.

Sell before you leave, or before you become a foreign resident

If you sign the sale contract while you’re still an Australian tax resident, you’re assessed under the normal rules. That means the six-year absence rule and the main residence exemption can still be available, provided the ordinary conditions are met. For a lot of people, selling before departure, or before residency actually changes, is the cleanest path to a tax-free result. Not glamorous. Effective.

Move back, genuinely resume residency, then sell

If you return to Australia, genuinely resume tax residency, and sign the sale contract while you’re an Australian resident again, you’re back inside the normal rules. Note the word genuinely. Flying back for a fortnight, signing a contract, and flying out again may not change your tax residency. The question isn’t where your pen was when you signed. It’s where your life had actually moved.

The narrow “life events” lifeline

There’s one exception that can let a foreign resident still claim the exemption, and it’s deliberately narrow. Under the life events test, you may still access the main residence exemption if, at the time of the CGT event (usually the contract date), you’ve been a foreign resident for a continuous period of six years or less, and one of these specific things happened during that foreign-residency period:

• You, your spouse, or your child under 18 had a terminal medical condition.
• Your spouse, or your child under 18, died.
• The CGT event happened because of a relevant family law matter following the breakdown of your marriage or relationship.

If you’ve been a foreign resident for a continuous period of more than six years, you’re an “excluded foreign resident,” and even these life events won’t help. This is a genuine safety net for some awful personal circumstances, not a tax-planning strategy. Nobody should be arranging their affairs around it.

And then there’s the CGT discount, which also bites expats

Suppose the exemption doesn’t fully apply and you’re left with a taxable gain. Under the current rules, Australian resident individuals who’ve held an asset for at least 12 months generally get the 50% CGT discount, which halves the taxable gain. Foreign residents haven’t had access to the full 50% discount for post-8 May 2012 foreign-resident periods. Where part of your ownership was as a foreign resident after that date, the discount can be reduced. So yes, you can lose both the exemption and part of the discount in the same unhappy transaction. Tax law does enjoy piling on.

One more timing wrinkle to watch. The 2026-27 Federal Budget proposed replacing the 50% CGT discount with inflation-based indexation and a minimum 30% tax rate on capital gains accruing from 1 July 2027, and Bills to implement that framework have been introduced into Parliament. They’re not settled law yet, and the detail should be checked before you rely on it, but for a large property gain this isn’t background noise, it’s the drumbeat. We cover it in our 2026 Budget guide for expats.

Don’t forget the withholding on the way out the door

One more layer, and it now catches everyone, not just foreign residents. From 1 January 2025, foreign resident capital gains withholding applies at 15% of the sale price, with no property-value threshold, on contracts for Australian real property, unless the right paperwork is provided. For Australian resident sellers, that means getting a clearance certificate and giving it to the buyer before settlement. For foreign resident sellers, it can mean applying for a variation if the default 15% is more than the likely tax.

This isn’t a separate tax. It’s an upfront amount withheld at settlement and credited through the seller’s Australian tax return. Comforting in theory. Less comforting when 15% of the sale price vanishes at settlement before you’ve even worked out the final CGT bill. So don’t treat withholding as a conveyancer’s admin footnote, it’s a cash-flow problem wearing a lanyard. We cover it in detail in our guide to foreign resident capital gains withholding.

If you own more than one home

If you’ve got more than one dwelling that could qualify, you need to choose which one is treated as your main residence for the relevant period, and you can generally only have one at a time. The good news is you don’t usually have to lock that choice in the moment you move out, you make it when you prepare the tax return for the year the relevant CGT event happens. The bad news is that choosing one home for a period can leave the other one exposed, so the choice has real consequences and is worth modelling rather than guessing. Guessing is free. Fixing is not.

The bottom line

The six-year rule is alive and well, but for normal planning purposes it now lives behind a locked door marked “check your residency before signing.” If you’re heading overseas with a home in the mix, the single most valuable thing you can do is work out the timing of any future sale before you go, not after.

Selling while you’re an Australian tax resident can preserve the ordinary main residence rules. Returning and genuinely resuming residency before selling can also keep the exemption in play. Selling while you’re a foreign resident can forfeit the lot, unless the narrow life events test applies.

This is one of those areas where a short conversation before you leave can be worth more than years of careful saving. Get the advice first. The tax law here does not hand out do-overs. It barely hands out napkins.

Got an Australian home and a one-way ticket?

The gap between a sale timed well and a sale timed badly can run to hundreds of thousands of dollars in this area, and almost all of it is decided by your residency on the day you sign. Our specialist expatriate tax team helps Australians all over the world plan the timing of a property sale, work out their residency position, and keep the main residence exemption where it belongs: in your pocket.

Book an appointment with our expat tax specialists today, ideally well before you list the property or board the plane. A short chat now can save a world of bother later.

General information only. This article doesn’t consider your personal circumstances and isn’t tax or financial advice. The CGT treatment of a property sale depends on your specific facts, your residency at the time of the relevant CGT event, your ownership history and timing, and figures and thresholds change over time. Some measures referred to are proposed but not yet law and may change. Speak to our specialist expatriate tax team today, or with another registered tax agent, before acting.