What are the CGT implications when converting a rental property to your main residence in Australia?

When you move into a property that was previously an investment property, you can elect to treat it as your main residence from that date. However, the period it was used as an investment property is not exempt from CGT. When you eventually sell, you must apportion the capital gain based on the time the property was used as a rental versus as your main residence.

For example, if you owned the property for 10 years and rented it out for the first 4 years before moving in, only 6/10 of any gain qualifies for the main residence exemption. The remaining 4/10 of the gain is subject to CGT. If you owned it for more than 12 months in total (which is almost certain), the 50% CGT discount applies to the taxable portion.

The 6-year absence rule works differently: it allows you to treat your main residence as still being your main residence while you rent it out for up to 6 years, provided you do not claim another property as your main residence during that period. This can be advantageous for the reverse situation (main residence turned into rental). For a property that starts as a rental, the absence rule does not help with the initial rental period.