Practice Update November 2024

6 November 2024

6-year rule

Usually, you do not pay any Capital Gain Tax (CGT) when you sell your Principal Place of Residence (PPR). A property stops being your primary residence when you stop living in it. However, for CGT purposes, you can continue treating this property as your primary residence under the conditions below.

  • If you have used it to produce income for up to 6 years,
  • Indefinitely, if you didn’t use it to produce income.

You can continue to treat the property as your primary residence after you stop living there, and it will continue to be exempt from CGT only if you are not treating any other property as PPR (except for up to 6 months if you are moving house).

Criteria for principal residence exemptions

  1. The 6-year exemption period only applies to the period during which the property stays as your principal residence. If you rented out your home before you lived in it, the principal residence exemption doesn’t apply to the period you rented it out.
  2. The usual rules for the main residence exemption apply if the property is continuously your principal residence. This means that if you use it to produce income, such as rent, you will be entitled to only a partial main residence exemption from CGT.
  3. Generally, if you are a foreign resident when the primary residence is sold, you aren’t entitled to claim the principal residence exemption.

Former home not used for income

If you don’t use your former home to produce income (for example, you leave it vacant or use it as your holiday house), you can treat it as your primary residence for an unlimited period after you stop living there. This only applies if you aren’t treating another property simultaneously as your primary residence.

Example:

Bill bought a unit and lived in it for 3 years. He then moved out to live with a friend while his son occupied the unit rent-free. Bill didn’t treat any other property as his primary residence. He sold the unit twelve years later and claimed the principal residence exemption from CGT.

Multiple absences from the primary residence

If you’re absent more than once when owning the property, the 6-year period applies to each period of absence. A period of absence stops when you either stop renting your home and move back in or leave it vacant.

Example:

James signed a contract to buy a house in Brisbane on 15 September 2012 and moved in as soon as the contract settled. He moved to Perth on 10 October 2014 and rented out his Brisbane house. He signed a contract to buy a new home in Perth on 3 October 2019 and moved in as soon as the contract was settled. The house in Brisbane was sold on 1 March 2024.

When he completed his 2023–24 tax return, James decided to treat the Brisbane house as his main residence for the period after he moved out in October 2014 until he purchased his new primary residence in Perth in October 2019. This is less than six years. James can claim a partial principal residence exemption under the ‘6-year rule’.

James decided not to treat the Brisbane house as his primary residence after he bought the Perth house, so he is subject to CGT for that period. This means James must include a capital gain or loss in the period not covered by the principal residence exemption in his 2024 tax return (from October 2019 until March 2024).

Dwelling used to produce income during multiple absences

Jez signed a contract to purchase a house in 2004 and moved in as soon as the contract settled. He stopped living in the house in 2013 because he had to move for work, so he rented it for five years. Jez:

  • moved back into the house in 2018 and treated it as his primary residence for 2 years.
  • moved out again in 2020 and rented the house for 3 years.
  • entered into a contract to sell the house in 2023.

While Jez lived in the house, he did not use it to produce income.

The 6-year limit applies separately to each period of absence immediately following a period Jez lived in the property. This means Jez can treat the house as his principal residence for both rental periods and disregard his capital gain or loss on the sale. Jez must include the CGT event in his tax return in the year of the contract sale date and claim the ‘Main residence exemption’ in his tax return.

What happens if the 6-year limit is exceeded

If you use your former home to produce income for more than 6 years in one absence, it is subject to CGT for the period after the 6-year limit. To work out your CGT when you dispose of your home:

  • You need to work out your cost base, which is the market value of your home at the time you first used it to produce income, plus any allowable costs since then (this is the home first used to produce income rule)
  • Your capital gain or loss is based on the period after first using your home to produce income, that is, over the 6-year limit.

Former home used for income before you move out.

If you use any part of your home to produce income before you stop living in it, you can’t apply the continuing principal residence exemption to that part. You can’t get the principal residence exemption for that part of your home before or after you stop living there.

Example:

Helen signed a contract to buy a house in 2006 and moved in immediately after the settlement. Helen:

  • used 75% of the house as her primary residence and the remaining 25% as a doctor’s surgery
  • moved out and rented out the house in 2018
  • signed a contract to sell the house in 2024, making a capital gain of $400,000.

Helen chose to treat the house as her main residence for the 6 years it was rented out. As 25% of the house was used to produce income during the period before Helen stopped living in it, the same proportion of the capital gain is assessable:

$400,000 × 25% = $100,000

When does a property stop being your primary residence?

A property usually stops being your primary residence when you stop living in it. There are a number of factors that indicate whether a property is no longer your primary residence:

  • you and your family no longer live in it
  • your personal belongings are not kept in it
  • it is no longer the address your mail is delivered to
  • it is no longer your address on the electoral roll
  • services such as gas and power are no longer connected.

The weight given to each of these factors depends on individual circumstances. The time you are absent from the property and your intention to re-occupy it may also be relevant.

Example:

Duc has lived in his house with his family for 5 years. It has been his primary residence for the whole period he has owned it. Duc accepts a 2-year posting overseas for work. During this period:

  • Duc’s family will travel and live with him overseas
  • Duc cancels his utility connections and places all of his personal belongings in storage
  • His mail has been redirected to his overseas address, and his address has been updated on the electoral roll.

The house ceases to be Duc’s primary residence during his absence. Depending on his other circumstances, he may choose to continue to treat it as his primary residence while he is away.


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Don’t let taxes dampen your holiday spirit! Just like Santa carefully checks who’s naughty or nice, businesses need to watch the tax rules when spreading Christmas cheer. Hosting festive parties for employees or clients can lead to Fringe Benefits Tax (FBT). FBT is a tax employers pay when they provide extra perks to employees, their families, or associates. It’s separate from regular income tax and is based on the value of the benefit. The FBT year runs from 1 April to 31 March, and businesses must calculate and report any FBT they owe. With a bit of planning—just like Santa’s perfect delivery route—you can celebrate while keeping your tax worries in check! FBT exemption: A little Christmas gift from the taxman The tax rules include a “minor benefit exemption”—like a small stocking stuffer. If the benefit given to each employee costs less than $300 and isn’t a regular thing, it’s exempt from Fringe Benefits Tax (FBT). Christmas parties fit perfectly here because they’re one-off events. Businesses can avoid FBT hassles if the cost per employee stays under $300. Remember: the more often you give out perks, the less likely they’ll qualify for this exemption. Thankfully, Christmas only comes once a year! Christmas parties at the office If you host your Christmas party at your business premises during a regular workday, costs like food and drinks are FBT-free, no matter how much you spend. However, you can’t claim a tax deduction or GST credits for those expenses. If employees’ family members join and the cost per person is under $300, there’s still no FBT, but again, no tax deduction or GST credits can be claimed. However, FBT will apply if the cost is over $300 per person. The good news is that you can claim both a tax deduction and GST credits in that case. FBT check for Christmas parties at the office Who attendsCost per personDoes FBT applyIncome tax deduction/Input Tax Credit available? Employees onlyUnlimitedNoNoEmployees and their familyLess than $300NoNoMore than $300YesYesClientsUnlimitedNoNo Think of it like this: at your Christmas party, the food and drinks are like Santa’s bag of gifts – no dollar limit exists for employees enjoying them on business premises. But if you add a band or other entertainment, the costs can add up quickly, and if the total cost per employee exceeds $300, FBT kicks in. Keep it under $300 per person, and you’re in the clear. Christmas parties outside the office If you hold your Christmas party at an external venue, like a restaurant or hotel, it’s FBT-free as long as the cost per employee (including their family, if they come) is under $300. But remember, you can’t claim a tax deduction or GST credits in this case. FBT will apply if the cost exceeds $300 per person, but you can claim a tax deduction and GST credits. Good news: employers don’t have to pay FBT for taxi rides to or from the workplace because there’s a special exemption. FBT check for Christmas parties outside the office Who attendsCost per personDoes FBT applyIncome tax deduction/Input Tax Credit available? Employees onlyLess than $300NoNoMore than $300YesYesEmployees and their familyLess than $300NoNoMore than $300YesYesClientsUnlimitedNoNo Clients at the Christmas party If clients attend the Christmas party, there’s no FBT on the expenses related to them, no matter where the party is held. However, you can’t claim a tax deduction or GST credits for part of the costs that apply to clients. Christmas gifts Many employers enjoy giving gifts to their employees during the festive season. If the gift costs less than $300 per person, there’s no FBT, as it’s usually not considered a fringe benefit. FBT check for Christmas gifts Who attendsCost per personDoes FBT applyIncome tax deduction/Input Tax Credit available? Entertainment giftsLess than $300NoNoMore than $300YesYesNon-entertainment giftsLess than $300NoYesMore than $300YesYes However, FBT might apply if the gift is for entertainment. Entertainment gifts include things like tickets to concerts, movies, or holidays. Non-entertainment gifts—like gift hampers, vouchers, flowers, or a bottle of wine—are usually FBT-free if under $300. So spread the festive cheer, but keep an eye on the taxman to avoid surprises!

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