The six-year absence rule, and what happens after it.

How the rule works

When you stop living in a dwelling that was your main residence, you may choose to continue treating it as your main residence. If it is not producing income, that choice is available indefinitely. If it is producing income — the ordinary case, because the property is rented — the choice is limited to six years of absence.

The choice is made in the way you prepare your return; there is no form to lodge. And it is exclusive: for any period, only one dwelling can be your main residence, so choosing to keep the old home covered means a new home is not covered for the same period.

The six years can reset

The six-year period is not a lifetime allowance. It restarts each time you resume living in the dwelling as your main residence and then leave again. A property rented for five years, occupied genuinely for a period, then rented again, starts a fresh six-year window.

What counts as resuming residence is a question of fact — where you actually live, where your possessions are, your address on the electoral roll and with service providers. A short token stay to reset the clock invites scrutiny.

What happens when the six years expire

Nothing happens immediately, and this is where the confusion lies. Exceeding six years does not make the whole gain taxable. It means the dwelling ceases to be treated as your main residence from the end of the six-year period, so the exemption becomes partial and the gain must be apportioned over the ownership period under s118-185.

Separately, and often overlooked: where the dwelling would have been fully exempt and was first used to produce income after 7.30pm ACT legal time on 20 August 1996, s118-192 deems you to have acquired it at market value on the day that income-producing use began. That deemed acquisition, not the original purchase price, is the figure the apportionment runs from — and it requires a valuation at a date now years in the past.

What valuation is actually needed

Which report you need depends on which provision applies. Your accountant will confirm; the practical cases are these.

Situation and the valuation required

Records worth keeping now

The cost of a retrospective valuation is driven by how well the property at the effective date can be described. If you are moving out of a home you may later rent, spend twenty minutes creating a record: date-stamped photographs of every room and the exterior, the rental listing, the first lease, and any renovation invoices.

Clients who do this get a stronger report for a lower fee, years later, and it is the single most useful thing we can suggest to anyone reading this before the event rather than after it.

• Date-stamped photographs, interior and exterior, at the moment you move out.
• The first rental listing and the first signed lease, fixing the income-producing date.
• Council rate notices for the relevant year.
• Invoices for any capital works, kept separately from repairs.
• A short written note of the dates you moved in and out, and where you lived instead.

Questions we are asked about this

Keep reading

Sources

• Income Tax Assessment Act 1997 — Consolidated Act, AustLII
• Market valuation for tax purposes — Australian Taxation Office — the eight valuation fundamentals
• Australian Property Institute — Professional Practice Standards and the CPV designation

This page is general information about how valuations are used for tax purposes. It is not tax advice. Your accountant or tax agent should confirm which provision applies to your circumstances.