Moving Overseas? How the '6-Year Rule' Makes Your Rental Income Tax-Free

⚠️ Critical Tax Warning: This rule exempts you from Capital Gains Tax (CGT) when you sell. It does NOT make your ongoing monthly rental income tax-free. You must still declare rent on your tax return every year.

✈️ Moving Interstate or Overseas?

You got a job offer in London, or maybe you are moving to Perth for a few years. You decide to keep your family home in Sydney or Melbourne and rent it out to cover the mortgage.

Five years later, you sell the property. It has gone up in value by $500,000.

Normally, the ATO would classify this as an "investment property" and tax the profit. But if you correctly applied the "6-Year Absence Rule," you could walk away with the entire $500,000 profit 100% Tax-Free.

What is the '6-Year Rule'?

The ATO allows you to continue treating a property as your "Main Residence" for tax purposes for up to 6 years after you move out, even if you are using it to produce income (renting it out).

Moving Overseas?

📋 The Golden Rules

• Eligibility: The property must have genuinely been your main residence first (you lived there) before you rented it out.
• The Limit: You can rent it out for a maximum of 6 years. (If you leave it vacant and don't rent it, you can actually treat it as your main residence indefinitely).
• The Catch: You cannot treat any other property as your main residence during this same period.
• The "Foreign Resident" Trap: Since 2020, if you are a "Foreign Resident for tax purposes" at the time you sign the contract to sell, you lose the exemption entirely. You generally must return to Australia and re-establish tax residency before selling to claim this benefit.

Saving $117,000 in Tax

Let's look at the difference this rule makes for a typical Australian homeowner.

Scenario	Without 6-Year Rule	With 6-Year Rule
Capital Gain (Profit)	$500,000	$500,000
Taxable Amount	$250,000 (50% Discount applied*)	$0 (Fully Exempt)
Estimated Tax Bill	~$117,500	$0

Advanced Strategy (Resetting the Clock)

What if you are away for longer than 6 years? Smart investors use the "Reset Strategy."

If you move back into the property and live there genuinely (usually for at least 6-12 months) before the 6-year limit expires, the clock resets. If you move out again later, you get a fresh 6-year period. You can do this indefinitely as long as you re-establish genuine residency each time.

Chief Editor’s Verdict

The 6-Year Rule is arguably the most generous tax gift the Australian government gives to property owners. It essentially allows you to hold an investment property that behaves like a tax-free family home.

However, beware of the "Foreign Resident" trap. If you move overseas permanently and sell while non-resident, you lose this perk. Always speak to a qualified accountant before signing a sales contract.

[General Advice Warning & Disclaimer]
This article provides general information only and does not constitute financial or tax advice. The 6-Year Rule (Section 118-145 of the ITAA 1997) has complex eligibility criteria, especially regarding Foreign Resident Capital Gains Withholding rules effective from 2020. If you are a foreign resident at the time of sale, the Main Residence Exemption usually does not apply. Always consult with a qualified Tax Accountant.