The CGT 6 Year Rule: How It Works and the Valuation Date Most Owners Miss

The CGT 6 year rule lets you keep treating a former home as your main residence for up to six years after you move out, provided you rent it out. If the property ends up only partly exempt, the ATO treats you as having acquired it at its market value on the day you first earned income from it. That date, not your purchase date, becomes the starting point for your capital gain.

• You can treat a former home as your main residence for up to six years while it earns income, or indefinitely while it does not.

• The six year limit applies separately to each period of absence, and it resets when you move back in and re-establish the property as your main residence.

• If you are entitled to only a partial exemption, the home first used to produce income rule applies and your cost base becomes the market value on the day you first rented the property.

• The ATO states that you must get a market valuation of your home when you first start using it for rental or business, if that was after 20 August 1996.

• Most owners only discover this years later, when they sell. A valuation dated to that earlier day is a retrospective valuation, and it can still be prepared.

What the CGT 6 year rule actually does

Your main residence is generally exempt from capital gains tax. A property normally stops being your main residence when you stop living in it, but the tax law lets you keep the exemption running after you move out.

The ATO sets out two situations. If you use the property to produce income, such as renting it, you can choose to keep treating it as your main residence for up to six years. If you do not use it to produce income, for example you leave it vacant or use it as a holiday house, you can keep treating it as your main residence indefinitely.

Two conditions sit underneath this. The property must have been your main residence first, so you cannot apply the rule to a period before you actually lived there. And you cannot treat another property as your main residence at the same time, apart from a limited overlap of up to six months when you are moving house.

The choice is made in your tax return for the year of the sale, and it is based on the contract date rather than the settlement date.

When the six year clock starts, stops and resets

The six year period is not a single lifetime allowance. It applies separately to each period of absence that follows a period when you actually lived in the property.

A period of absence ends when you either move back in or leave the property vacant. Vacant time does not consume the six years, because the limit only applies while the property is producing income.

This produces a practical pattern. An owner who moves out, rents for five years, moves back in and re-establishes the property as their main residence, then moves out and rents again, can rely on the six year limit for each of those rental periods separately.

You can also choose to end the period early. If you rented the property for five years, you can choose to treat it as your main residence for only three of those years, which matters when you have bought another home you would rather claim.

The valuation date the six year rule creates

This is the part that most guides on this topic leave out.

If you use your former home to produce income for more than six years in a single absence, the property is subject to CGT for the period past that six year limit. To work out the gain, you do not go back to what you paid. You use the market value of the property at the time you first used it to produce income. The ATO calls this the home first used to produce income rule.

The ATO guidance on this is direct. Its page on using your home for rental or business states that you must get a market valuation of your home when you first start using it for rental or business, if this was after 20 August 1996, and that you need this value to calculate your capital gain or loss when you sell.

When the market value rule applies

According to ATO guidance, the rule applies when all of the following are true:

• you acquired the property on or after 20 September 1985

• you first used it to produce assessable income after 20 August 1996

• you would be entitled to only a partial CGT exemption because it produced income while you owned it

• you would have been entitled to a full exemption if a CGT event had happened immediately before you first used it to produce income

When it does not apply

The ATO also lists situations where the rule does not bite:

• the property produced income from the time you acquired it, so it was never solely your home first

• you inherited the dwelling and it was the main residence of the deceased, and you sell within two years

• you rely on the six year rule and the property ends up fully exempt, in which case there is no partial exemption to calculate

• you do not meet the criteria for a partial exemption, for example you were a foreign resident when you sold, or you claimed the exemption on another property for that period

That third point is worth reading twice, because it is where the six year rule and the valuation rule interact. If you sell inside six years and the property is fully exempt, the market value figure does not change your tax position. If you go past six years, or you choose not to apply the rule, the valuation becomes the foundation of the calculation.

Which situation are you in?

• Moved out, left vacant, sold at any time: generally a full exemption, and a market valuation is generally not required for this rule.

• Moved out, rented, sold within six years with the rule applied: generally a full exemption, and a market valuation is generally not required for this rule.

• Moved out, rented, sold after more than six years in one absence: a partial exemption, and a market valuation at the date first rented is needed.

• Moved out, rented, and chose to claim a different home instead: a partial exemption, and a market valuation at the date first rented is needed.

• Rented from the day you bought it, moved in later: a partial exemption, but the rule is excluded, so the purchase cost base is used.

• Foreign resident at the time of sale: generally no exemption, and the position depends on circumstances, so seek advice.

Your circumstances may not sit neatly in one of these categories. The list is a starting point for a conversation with your accountant, not a substitute for it.

What if you never got a valuation when you moved out?

This is the most common version of the problem. Someone moves out in, say, 2016, rents the property, sells in 2026, and only then learns that the relevant value is the one from 2016.

The valuation date has passed, but the valuation itself can still be prepared. A retrospective property valuation assesses what the property was worth at a specified earlier date, using the sales evidence and market conditions that applied at that time rather than the market of today.

A valuer preparing one will typically work from comparable sales around the relevant date, the condition and configuration of the property at that time, historical listing and sales records, and any records you hold such as photographs, building approvals or renovation invoices.

The further back the date and the thinner the evidence, the more the valuer has to explain their reasoning. That is one reason the ATO expects a report to record whether it is a retrospective assessment.

What the ATO expects a valuation report to contain

The ATO market valuation guidance sets out a minimum standard. A valuation report should include:

• the purpose of the valuation

• the scope of the valuation

• details of the asset being valued

• the date it was conducted

• whether it is a retrospective valuation assessment

• the date of inspection, if applicable

• records explaining the basis of the market value

• the value

The ATO also states that valuations undertaken by professional valuers are more credible than those provided by someone who is not a professional valuer, and that generally, if you engage and properly instruct a professional valuer, you will not be liable for penalties if the ATO later finds the professional valuation is deficient.

That last point is the practical reason to use a qualified valuer rather than an estimate. It is about the position you are in if the figure is later reviewed.

You should keep the report. If the ATO reviews your tax affairs, those records are what support the value you used.

An illustrative example

The following calculation uses the method set out in ATO guidance. The figures are illustrative only and are not a Propti client case.

An owner bought a house in 2010 and lived in it. On 1 July 2016 they moved out and rented it. The market value at that date was $700,000. They sold under a contract dated 1 July 2026 for $1,100,000, with $25,000 in selling costs. The property was rented for the whole ten years in a single absence.

Because the absence exceeded six years, the owner is treated as having acquired the property on 1 July 2016 for $700,000.

• Cost base: $700,000 plus $25,000 in costs, so $725,000

• Capital gain: $1,100,000 less $725,000, so $375,000

• Days from the deemed acquisition to sale: 3,652

• Days past the six year limit: 1,461

• Assessable portion: $375,000 multiplied by 1,461 divided by 3,652, which is about $150,020

• After the 50% CGT discount: about $75,010

The valuation figure drives the whole calculation. If the 2016 value had been recorded as $600,000 rather than $700,000, the assessable gain before the discount would rise by roughly $40,000. The tax effect of that depends on the marginal rate of the owner and other circumstances, which is a question for their accountant.

Common mistakes

• Assuming six years is a lifetime cap. The limit applies to each absence separately, so moving back in and genuinely re-establishing the property as your main residence can start a fresh period.

• Using an agent appraisal as the valuation. An appraisal and a valuation are different documents prepared to different standards. The difference between a valuation and an agent appraisal matters when the figure has to be supportable years later.

• Estimating the old value from current data. A retrospective valuation is built from evidence contemporaneous with the valuation date, not from a current figure adjusted backwards.

• Forgetting income produced before you moved out. If part of your home produced income while you were still living there, the continuing main residence exemption does not apply to that part, either before or after you move out.

• Working from the settlement date. The CGT event is reported by reference to the contract date.

• Assuming the rule is optional. Where the conditions are met, the market value approach is how the calculation is done. It is not a planning choice you can decline.

When to get professional advice

The six year rule looks simple and behaves in complicated ways once there are multiple absences, part of the home has been used for business, the property was inherited, or the owner has spent time as a foreign resident. Foreign residency in particular can remove the main residence exemption altogether at the time of sale.

Your accountant or tax agent determines how the rule applies to your circumstances and what you report. The role of a valuer is narrower and separate: to provide a supportable opinion of market value at the date your accountant identifies. Propti does not provide tax, legal or financial advice, and cannot tell you what your tax position is.

Frequently asked questions

Can I move back into my property to restart the six year rule?

Moving back in and genuinely re-establishing the property as your main residence ends that period of absence. A later absence is then assessed separately against the six year limit. Whether your circumstances qualify is a question for your accountant.

Do I need a valuation if I sell within six years?

Usually not for this particular rule, because a fully exempt property has no partial exemption to calculate. If you are relying on the exemption for another property in the same period, the position changes.

I moved out eight years ago and never got a valuation. What now?

A retrospective valuation dated to the day you first rented the property can still be prepared. Gather whatever records you have from that period, as they help support the assessment.

Will a bank valuation from that time do?

It may be useful evidence, but valuations prepared for mortgage security purposes are prepared for a different purpose and are often conservative. Confirm with your accountant whether it is sufficient for your situation.

Does the six year rule apply if I live overseas?

If you are a foreign resident when the CGT event happens, you generally are not entitled to the main residence exemption. This area has specific rules and warrants advice before you sell.

Who can prepare the valuation?

The ATO indicates that valuations by professional valuers carry more weight, and that properly instructing a professional valuer generally protects you from penalties if the valuation is later found deficient. Propti works with qualified valuers across Australia.

Getting a CGT valuation through Propti

If your accountant has told you that you need a market value as at the date you first rented your former home, Propti can arrange it.

This service suits homeowners who have moved out and rented a former home, along with the accountants and solicitors advising them. To get a quote, you will need the property address, the date the property was first rented, and any records you hold from that period such as photographs, floor plans or renovation invoices.

Once you enquire, Propti confirms which report suits the purpose, provides a fee and turnaround estimate, and matches the job to a valuer who covers that location and property type. Where a physical inspection is not possible or not required, a desktop valuation may be appropriate, though a full valuation report carries more supporting detail.

Learn more about CGT property valuations, or book in a report to get started.

Propti cannot determine your tax position or advise whether the six year rule applies to you. That is the role of your accountant.