The 6-year rule for Australian Expats: Unpacking the details

For many Australians moving overseas, one of the biggest financial questions is what to do with the family home. Should you sell it? Keep it? Rent it out?

For Australian Expats, the capital gains tax (CGT) implications can be significant, particularly because the Main Residence Exemption is generally not available to non-residents for tax purposes.

However, there is an important exception that may apply in certain circumstances: the 6-year rule, also known as the temporary absence rule. Understanding how the 6-year rule for Australian Expats works could potentially save tens, or even hundreds, of thousands of dollars in tax.

A quick refresher: The Main Residence Exemption

Under normal circumstances, Australian tax residents can access the Main Residence Exemption. This means if the property has been your main residence, you may be fully exempt from CGT when you sell.

However, legislative changes in Australia that took effect from 1 July 2020 have significantly restricted access to the Main Residence Exemption for individuals who are non-residents for tax purposes at the time of sale. In some limited circumstances, such as satisfying specific life event conditions, an exemption may still be available.

In most cases, Australian Expats who sell their former home while classified as non-residents cannot access the full exemption, even if they lived in the property for many years before leaving Australia. This is where the 6-year rule for Australian Expats becomes particularly relevant.

What is the 6-year rule?

The 6-year rule for Australian Expats is an extension of the Main Residence Exemption. It allows you to treat your property as your main residence for CGT purposes even after you move out, for up to six years, if certain conditions are met.

Importantly:

• You must have lived in the property as your main residence before moving out

• After moving out, you can rent the property out

• You can continue to treat it as your main residence for up to six years while it produces income

If you do not rent the property out, there is technically no time limit; you can treat it as your main residence indefinitely while it remains vacant.

This rule is particularly relevant for Australian Expats who:

• Move overseas for work

• Intend to return to Australia

• Want to keep their Australian property as part of their long-term plan

How the 6-year rule for Australian Expats works in practice

If you move overseas and rent out your former home, you may be able to:

• Continue treating it as your main residence for up to six years

• Potentially eliminate or reduce CGT on the period it was rented

  
  

However, there are important considerations:

• Your tax residency status at the time of sale remains critical. Only an Australian resident for tax purposes is eligible.

• The six-year period can be reset if you move back into the property and re-establish it as your main residence

• You cannot treat two properties as your main residence at the same time (with limited exceptions)

The interaction between non-residency rules and the 6-year rule for Australian Expats can be complex, particularly following the changes to the law restricting access to the Main Residence Exemption for foreign residents.

A simple example

Let’s consider Sarah.

Sarah buys a home in Sydney and lives in it for five years. She then moves to Singapore for work and rents the property out.

She remains overseas for four years before returning home and decides to sell the property.

If Sarah satisfies the relevant conditions and the 6-year rule applies, she can treat the property as her main residence for the entire period, including the four years it was rented out.

This could mean:

• No CGT on the rental period

• A significantly reduced or potentially eliminated capital gain

However, if Sarah remained overseas and sells the property while still a non-resident, she will not be eligible for the main residence exemption or 6-year rule in any capacity, even for the five years in Sydney where she lived in the property.

Strategic Considerations for Australian Expats

The 6-year rule for Australian Expats can be powerful, but it requires careful planning.

Key strategic questions include:

• Will you return to Australia within six years?

• Are you likely to become an Australian tax resident again before selling?

• Should you sell before or after your tax residency status changes?

• Are there life events that may allow access to the exemption as a non-resident?

Timing is critical.

A poorly timed sale could result in a large and unexpected CGT liability.

A well-planned strategy could significantly improve your after-tax outcome.

Conclusion

The 6-year rule for Australian Expats is one of the most important CGT provisions for Australians living overseas with a former main residence in Australia.

While the Main Residence Exemption is often unavailable to non-residents at the time of sale, the 6-year rule may provide valuable flexibility, particularly for expats on medium-term overseas assignments who plan to return home.

Because residency status, timing, and property usage all interact, personalised advice is essential.

If you are an Australian Expat living overseas and unsure how the 6-year rule for Australian Expats applies to your situation, obtaining specialist advice before making any decisions can make a substantial financial difference.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.