The CGT Six-Year Rule: Negative Gearing Changes Explained
The CGT Six-Year Rule: Why It Still Matters
One of the many areas affected by the big changes to negative gearing and Capital Gains Tax (CGT) is the “absence concession.” It’s commonly known as the CGT six-year rule.
It lets you continue to treat your home as your CGT-free main residence during an extended absence. This includes periods where you rent it out for up to six years.
There appear to have been no direct changes to this concession so far. But some interesting consequences arise from using it under the new tax rules.
Negative Gearing and the Grandfathering Carve-Out
For example, say you rent your home out during a period of absence, and you have a big mortgage. You may find yourself in a negatively geared position. This is where your taxable rent is less than your deductible rental expenses, leaving you with a deductible loss.
If you acquired your home before 12 May 2026 (Budget-day), you can still claim this negative geared loss. That’s because the changes which now “quarantine” negative gearing losses don’t apply to property acquired before that date.
In other words, such property is “grandfathered” from the negative gearing changes for now. The expectation is that it will cease to be pre-12 May 2026 property once it’s sold or bequeathed to beneficiaries.
Suffice to say, the combination of this carve-out and the CGT absence concession can provide real benefits. There may even be some good planning opportunities here.
The CGT Six-Year Rule and the New Discount Changes
Now for the CGT six-year rule’s discount changes. Where the absence concession is used, it continues to treat the home as your CGT-free main residence throughout your absence. That means there are no CGT consequences on any later sale or disposal.
But there’s an important exception. If you rent your home for more than six years, only a partial CGT exemption will apply. This reflects the period beyond six years that you rented it out.
Even then, that partial exemption is calculated favourably. It’s based on the market value of your home when you first rented it out, not its original cost.
Nevertheless, the capital gain so calculated will be subject to the new CGT rules, regardless of when you acquired the property. This is unlike the negative gearing changes.
This generally means you still get the 50% discount up to the property’s market value on 30 June 2027. But the new, less favourable indexation rules will tax any gain accruing after that date, at a minimum 30% rate.
The Real Cost of the Main Residence Exemption
For those who are interested, here’s a striking figure. The 50% CGT discount on a partial capital gain from the sale of a home — and other cases where a partial exemption applies — costs the government an estimated $25 billion to $30 billion in foregone tax each year. And this has been the case for at least the last 10 years.
What You Should Do Next
A person’s home is usually their most significant asset. If you think these changes could affect — or even help — you, please make an appointment to see us about it.
For more detail on how the ATO defines the six-year absence rule, see their guidance on treating a former home as your main residence.
If your situation touches on broader tax planning around your property, our tax planning and advisory services may also help. Please visit our website to book an obligation-free appointment. (