What Is the 6-Year Rule for Non-Residents in Australia?

If you’re a non-resident owning property in Australia, you might have heard about the 6-year rule. It’s not a magic loophole - it’s a specific tax provision under the Australian Taxation Office (ATO) rules that can save you thousands in capital gains tax. But only if you meet all the conditions. Many people misunderstand it. Some think it lets them avoid tax entirely. Others assume it applies automatically. Neither is true.

What the 6-Year Rule Actually Does

The 6-year rule lets you treat a property you once lived in as your main residence - even after you’ve moved out - for up to six years. This means you might avoid paying capital gains tax (CGT) when you sell it, even if you’re no longer an Australian tax resident.

Here’s how it works in practice: You buy a home in Sydney, live in it for 18 months, then move overseas for work. You keep the property and rent it out. Six years later, you sell it. If you qualify, you pay $0 in CGT on the profit, even though you were a non-resident during the rental period.

This rule only applies to properties you used as your main residence before becoming a non-resident. You can’t use it for a property you bought while already living overseas. It’s tied to your past residency, not your current status.

Who Can Use the 6-Year Rule?

You must have lived in the property as your main residence at some point before becoming a non-resident. That’s the key. The ATO doesn’t care how long you lived there - a week doesn’t count, but 12 months does. There’s no minimum stay requirement, but you need to show real occupancy. Evidence? Utility bills, mail addressed to you at that address, driver’s license listing it, or bank statements.

You also can’t claim another property as your main residence during the same period. If you move into a new home in Melbourne while renting out your Sydney property, you lose the exemption for Sydney. You can only have one main residence at a time for CGT purposes.

And here’s the catch: the rule only works if you were an Australian tax resident when you first moved out. If you were already a non-resident when you bought the property, the 6-year rule doesn’t apply. That’s a common mistake. Many overseas buyers think they can buy a home in Australia, rent it out, and later claim the exemption. They can’t.

What Happens After Six Years?

The exemption ends after six years. If you sell after that, you’ll owe CGT on the portion of the gain that happened while you were a non-resident.

Let’s say you lived in your home for two years, then rented it out for eight years while living overseas. You’re only exempt for the first six years of renting. The last two years? Taxable. You calculate the gain based on the property’s value when you became a non-resident versus its value at sale. The ATO treats the property as if it was sold and repurchased at market value when you left Australia. That’s your cost base going forward.

Example: You bought your home for $600,000 in 2018. You lived there until 2020, then moved to Canada. At that point, the home was worth $800,000. You rent it out until 2028 and sell it for $1.2 million. Your exempt gain is $200,000 (up to the 6-year mark in 2026). The gain from 2026 to 2028 - $400,000 - is taxable. You pay CGT on that $400,000 portion.

What If You Move Back to Australia?

If you return to Australia and move back into the property before selling, the 6-year rule resets. You can start counting again from the date you reoccupy it as your main residence.

Let’s say you rented out your home for five years, then came back to Australia in 2025 and lived in it for another year. You sell in 2026. You’re now eligible for a full main residence exemption because you lived in it again. The six-year clock doesn’t apply - you’ve re-established it as your main residence.

This is useful for people on temporary work visas or those who left Australia expecting to return. If you come back, treat the property like you never left - you can claim the full exemption if you sell after living in it again.

What You Can’t Do

There are several traps people fall into.

• You can’t claim the 6-year rule on multiple properties at once. Only one main residence.
• You can’t use it if you claimed the exemption on another property during the same period.
• You can’t use it if you were never an Australian tax resident when you moved out.
• You can’t use it for investment properties bought while overseas.
• You can’t extend the six years - even if you have a good reason.

There’s no appeal process. The ATO doesn’t make exceptions for illness, job loss, or family emergencies. The six-year limit is absolute.

How the ATO Tracks This

The ATO cross-references data from banks, real estate agents, rental platforms, and immigration records. If you’re a non-resident renting out a property, they know. If you claimed the main residence exemption on another home during the same period, they know. If you bought the property after becoming a non-resident, they know.

They also use property transaction data. If you sold a home in 2020 and bought another in 2021, they’ll check whether you lived in the first one before leaving. They don’t need your permission to access this information.

Non-residents are under increased scrutiny. Since 2020, Australia has tightened CGT rules for foreign investors. The ATO now has access to data from over 100 countries through international tax treaties. If you’re a non-resident and you’ve rented out a former home, they’re watching.

What to Do If You’re Not Sure

Don’t guess. If you’re unsure whether you qualify, get a written ruling from the ATO. It costs nothing to apply. You submit your situation - dates of occupancy, residency status, rental periods - and they give you a binding answer.

Many accountants skip this step because they assume they know the rules. But the ATO’s rulings are legally binding. If you follow their answer and they later audit you, you’re protected.

Keep detailed records: lease agreements, bank statements, proof of residency before leaving, valuation reports, and tax returns. If you’re audited, you’ll need them. The ATO doesn’t accept vague memories or estimates.

Alternatives to the 6-Year Rule

If you don’t qualify for the 6-year rule, there are other options.

• Hold the property for 12 months after becoming a non-resident - you still get a 50% CGT discount if you’re an individual.
• Transfer ownership to a spouse who’s still an Australian resident - they may be eligible for the main residence exemption.
• Use the property as your main residence again before selling - reset the clock.
• Consider selling before you leave Australia - lock in the exemption while you’re still a resident.

Each has trade-offs. Transferring property can trigger stamp duty. Selling before leaving might mean missing future price growth. There’s no one-size-fits-all. But knowing your options helps you plan.

Real-World Example: A Sydney Investor’s Story

A couple bought a unit in Marrickville in 2017 for $720,000. They lived there for 22 months. In 2019, they moved to Singapore for work. They kept the unit and rented it out. They never claimed another property as their main residence.

In 2025, they sold the unit for $1.3 million. They were non-residents for six full years. The ATO allowed the full exemption because they met all conditions. They paid $0 in CGT.

If they’d waited until 2026 to sell - one year past the six-year mark - they’d have owed tax on $180,000 of the gain. That’s over $40,000 in tax at the top marginal rate. Six months made the difference between $0 and $40,000.

They didn’t get lucky. They planned. They kept records. They knew the rule. That’s what separates people who save money from those who get hit with surprise tax bills.

Final Advice

The 6-year rule is powerful - but only if you use it correctly. It’s not a tax avoidance scheme. It’s a tax exemption for people who lived in their home and left temporarily. If you fit that profile, use it. If you don’t, don’t try to stretch it.

Don’t rely on advice from Facebook groups, YouTube videos, or well-meaning friends. The rules are complex and the penalties are high. Talk to a tax professional who understands Australian residency rules. Get it in writing. Keep your documents. And never assume - verify.

Because when it comes to tax, the difference between saving thousands and paying thousands is often just a few lines in the law - and whether you know them.