Turning Your Home Into a Rental: Six-Year Rule and New CGT

If you move out of your home and rent it, you can usually keep treating it as your main residence for capital gains tax (CGT) for up to six years, provided you don’t elect another property as your main residence at the same time. Under the 2026–27 reforms, that basic six‑year rule still exists, but CGT outside the exemption becomes harsher, so mistakes cost more and record‑keeping matters.

The six-year rule lets many accidental landlords keep main residence CGT protection for a limited time.

Quick refresher: main residence exemption and six-year rule

Your main residence exemption normally means no CGT when you sell the home you genuinely live in.

The six-year rule (s118‑145 ITAA 1997) lets you:

1. Move out of your home.
2. Rent it out.
3. Still treat it as your main residence for CGT for up to six years while it’s producing income.

Key conditions in plain English:

• The property must have genuinely been your main residence first (you actually lived there).
• You can’t treat another property as your main residence for the same period (with narrow overlap exceptions when moving).
• If you move back in, the six-year clock can reset if you later move out again.

For a fuller walkthrough of how the exemption interacts with loans and gearing, see Capital gains tax, your home and geared property under new rules.

Simple worked example

• Buy and move into an apartment: July 2022.
• Move out and rent it: July 2024.
• Keep renting it until you sell: June 2030.

You choose to keep treating it as your main residence from July 2024 to June 2030 (6 years).

Result under current rules:

• Entire ownership period (2022–2030) is covered by the exemption.
• No CGT, even though it’s been a rental for years.

What changes under the 2026–27 CGT reforms?

From 1 July 2027, the Budget and reform bill proposals mean:

• The main residence exemption stays (this is critical for accidental landlords).
• For taxable gains (where the exemption doesn’t fully apply), the old flat 50% CGT discount for individuals and most trusts is replaced with:
  • CPI indexation of cost base, and
  • A 30% minimum tax on many capital gains.

So:

• If your main residence exemption fully covers the gain, nothing changes.
• If you only get a partial exemption (e.g. you exceed six years or elect another home), the taxable slice is likely higher than today.

That’s why using the six‑year rule cleanly is now more valuable for geared investors and accidental landlords than it used to be.