The six-year CGT rule allows a homeowner who moves out of their principal place of residence (PPOR) to continue treating it as their main residence for capital gains tax purposes for up to six years. This applies to a Melbourne investment property in 2026 provided the owner does not nominate another property as their PPOR during that period.
Many owners in Melbourne’s eastern suburbs and the Peninsula are currently reviewing these rules as they evaluate the costs of holding assets. With Victoria facing the heaviest property tax burden in the country in 2026, the ability to exempt a property from CGT is a critical factor in the decision to sell.
How the six-year rule operates
The rule applies when a property was initially a PPOR and then rented out. Owners can treat the home as their main residence for up to six years after moving out, provided no other property is nominated as a PPOR. If the property is held longer or another PPOR is claimed, a partial exemption applies based on the ratio of days lived in the home versus total ownership.
CGT triggers and timing
CGT is part of the income tax system, where a capital gain is added to the owner’s assessable income and taxed at their marginal rate. The CGT event crystallises on the date the contract of sale is signed, not the settlement date. To minimise the effective tax rate, some owners sell during low-income years, such as during retirement or maternity leave.
Why investors are divesting in 2026
Victoria’s tax environment has become more restrictive, including land tax rises, VRLT expansion, and the Short Stay Levy. Many investors who purchased between 2017 and 2020 are now crystallising COVID-era gains to avoid unsustainable negative cash flow caused by 2022–2023 RBA rate rises. Net rental yields for Melbourne inner-city investors have been materially compressed (Forge Property, February 2026).
The land tax absorption risk
For properties under the $10.7 million prohibition threshold, sellers cannot require buyers to contribute to land tax at settlement. The seller absorbs all land tax costs up to the settlement date. This creates a direct financial incentive to align the contract signing and settlement dates with the tax year.
Frequently asked questions
Does the 6-year rule apply if I buy another home?
No. The rule allows you to treat a former PPOR as your main residence for up to six years, provided you do not nominate another property as your PPOR during that time. If you claim another home as your main residence, the exemption on the first property typically ceases.
When is the CGT event actually triggered for a house sale?
The CGT event crystallises on the date the contract of sale is signed. It is not triggered at settlement. This distinction is critical for vendors deciding whether to sign a contract before or after 30 June to manage their tax obligations for a specific financial year.
How can I reduce the CGT I pay on an investment property?
Owners can use existing capital losses from other assets to offset the gain or split the gain between joint owners, who then report it at their individual marginal rates. Selling in a low-income year can also minimise the effective tax rate applied to the capital gain.
What happens to CGT if I lived in the house for a few years?
A partial main residence exemption applies if a property was lived in as a PPOR and then rented (or vice versa). The exempt portion is calculated by the number of days it was the main residence compared to the total ownership period. A 50% discount applies if held over 12 months.
Questions to ask your agent
- How has the current increase in investment property supply in our specific submarket affected buyer demand?
- Based on recent sales, what is the current price gap between owner-occupier buyers and investors for this property type?
- How should we structure the contract dates to best align with the current land tax prohibition threshold?
This article contains general market information based on data current as at April 2026. It does not constitute financial, legal, or real estate advice specific to your property or circumstances. For an appraisal and tailored advice, speak with a Fletchers agent in your area.