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Edited version of private ruling
Authorisation Number: 1011461565436
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Ruling
Subject: Capital gains tax - Main residence - two dwellings
Question 1
Are you entitled to a partial main residence exemption upon disposal of your apartment?
Answer
Yes.
Question 2
Are you entitled to a partial main residence exemption upon disposal of your interest in your home?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2008
The scheme commenced on
1 July 2007
Relevant facts
A number of years ago you acquired an apartment (apartment) solely in your name.
You established the apartment as your main residence.
Some years later after your marriage, you and your spouse moved to a foreign country for employment reasons.
The apartment was rented out.
A number of years later you and your spouse jointly purchased a home (home) in Australia for the purpose of establishing it as your main residence upon your return from overseas.
Approximately a month after settlement of the home, the home was available for rent as it became obvious that you and your spouse would be staying overseas for at least another 12 months.
Several years later you and your family returned to Australia.
Due to the lease terms you and your family could not move into the home until later that year.
You had your mailing address upon your return to Australia was your home address, but had the post office re-direct your mail to your apartment.
You were not on the electoral role whilst you were overseas until your return to Australia. When you enrolled you used your home address as your address.
You and your family moved in and established the apartment as your main residence from your return to Australia to you and your family moved into your home.
You have elected to continue to treat your apartment as your main residence since you vacated it upon your departure from Australia.
Late the year you returned from overseas you and your family moved into the home and established it as your main residence.
Later you transferred your 50% ownership interest in the home and your apartment into your spouse's name for asset protection purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 118-110.
Income Tax Assessment Act 1997 Section 118-145.
Income Tax Assessment Act 1997 Section 116-30.
Income Tax Assessment Act 1997 Section 118-185.
Income Tax Assessment Act 1997 Section 115-5
Income Tax Assessment Act 1997 Section 114-1
Income Tax Assessment Act 1997 Section 114-5
Income Tax Assessment Act 1997 Section 114-1
Reasons for decision
The most common capital gains tax (CGT) event (CGT event A1) happens if you dispose of a CGT asset, or interests in a CGT asset to another entity. The time of the event is when you enter into a contract or if there is no contract, when the change of ownership occurs.
Therefore, when you transferred your 50% ownership interest in the home and your apartment into your spouse's name, a CGT event A1 occurred.
Main residence exemption
Generally, you can disregard a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence.
To get the full main exemption from CGT:
- the dwelling must have been your home for the whole period you owned it
- you must not have used the dwelling to produce assessable income, and
- any land on which the dwelling is situated must be two hectares or less.
A dwelling is considered to be your main residence from the time you acquire your ownership interest in it if you moved into as soon as practicable after that time. If you purchased a dwelling, this would generally be the date of settlement of the purchase contract.
Whether a dwelling is your main residence is an issue which depends on the facts in each case.
Some relevant factors may include, but are not limited to:
- the length of time you have lived in the dwelling
- the place of residence of the taxpayer's family
- whether you have moved your personal belongings into the dwelling
- the address to which your have your mail delivered to
- your address on the Electoral Roll
- the connection of services such as telephone, gas and electricity, and
- your intention in occupying the dwelling.
The relevance and weight to be given to each of these or other factors will depend upon the circumstances of each particular case.
If you could not move in because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest.
Continuing main residence status after dwelling ceases to be your main residence
In some cases you can choose to have a dwelling treated as your main residence even though you no longer live in it. You can only make this choice for a dwelling that you have first occupied as your main residence.
If you do not use the dwelling to produce income, you can treat the dwelling as your main residence for an unlimited period after you cease living in it.
Where you use the dwelling to produce income, you can choose to treat it as your main residence while you use it for that purpose for up to six years after you cease living in it. You are entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, your main residence.
If you make this choice, you cannot treat any other dwelling as your main residence for that period.
Partial main residence exemption
If a CGT event happens to a dwelling on or after 20 September 1985, and that dwelling was not your main residence for the whole time you owned it, you get only a partial exemption.
The formula that you use to calculate the part of the capital gain that is taxable is:
total capital gain made number of days in your ownership period when the
from the CGT event X dwelling was not your main residence
total number of days in your ownership period
How the law applies to your situation
Although you are not eligible for the full main residence exemption on both the apartment and the home you are eligible for a partial main residence exemption.
Apartment
The partial main residence exemption will apply for the following periods:
- from the date you moved in to the apartment until the date six years after you and your spouse vacated it, as the absence choice is for a maximum period of six years. The apartment was rented out for a period in excess of six years, and
- from the date when you moved in (return from overseas) and established the apartment as your main residence to the date you and your family moved out and established the home as your main residence.
You will need to use the above formula to calculate your capital gain. This formula takes into account both the days the apartment was not your main residence, and the total number of days in your ownership period.
As you acquired the apartment prior to 21 September 1999, you can use either the indexation or discount method to calculate your capital gain.
For more information on these methods please see the enclosed information sheet.
This information was taken from Guide to capital gains tax 2008-09 (NAT 4151-6.2009). Information is also available on our website - www.ato.gov.au.
Home
As stated above a dwelling cannot be considered to be your main residence until you move in and establish it as your main residence.
Although you intended to move into the home upon your arrival back in Australia you and your family did not move in and established it as your main residence until late the year you and your family returned from overseas, as your apartment as your main residence up until you moved into the home.
The above formula takes into account both the days the home was not your main residence, and the total number of days in your ownership period.
Therefore, you are entitled to a partial main residence exemption on your 50% interest in the home from the date you moved into it until the date your interest was transferred to your spouse.
You can use the discount method to calculate your capital gain as you meet the criterion required to use this method.
For more information on this method please see the enclosed information sheet. This information was taken from the Guide to capital gains tax 2008-09 (NAT 4151-6.2009). Information is also available on our website - www.ato.gov.au.
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