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Authorisation Number: 1011515180027

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Ruling

Subject: Capital gains tax - main residence exemption

Question 1

Is the capital gain made on the disposal of your dwelling disregarded?

Answer

No.

Question 2

Are you entitled to a partial main residence exemption on the disposal of your dwelling?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2011.

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You purchased a dwelling sometime after 20 September 1985 and occupied it as your main residence.

Some years later you moved away and rented the dwelling out. You chose to continue to treat this dwelling as your main residence.

More than six years after you originally vacated the dwelling, you moved back into the dwelling, occupying it as your main residence.

You plan to dispose of the dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110,

Income Tax Assessment Act 1997 section 118-145 and

Income Tax Assessment Act 1997 section 118-185.

Reasons for decision

Question 1

Detailed reasoning

You make a capital gain or capital loss if a capital gains tax (CGT) event happens. The most common event occurs if you dispose of a CGT asset, such as your home. This is called CGT event A1.

Generally, a capital gain or loss that was made on the disposal of your home can be disregarded if you are an individual, the dwelling was your main residence for the entire time you owned the property and you did not use it to produce assessable income.

In your case, as the dwelling was not your main residence for your entire ownership period, you are not entitled to disregard the capital gain made on the disposal of the dwelling.

Note: Simply owning one dwelling at any one time does not in itself mean that it is your 'main residence'. It is necessary to 'occupy' a dwelling as your main residence.

Question 2

Detailed reasoning

If a dwelling that was your main residence ceases to be your main residence, there are provisions that allow you to extend the main residence exemption beyond the period in which you are occupying the dwelling as your main residence. This means that you can choose to continue to treat it as your main residence after you move out. If you use the part of the dwelling that was your main residence for the purpose of producing assessable income, such as renting the dwelling out, the maximum period you can continue to treat the dwelling as your main residence after you move out, is six years.

If you make this choice, you cannot treat any other dwelling as your main residence during this time.

In your case, you occupied the dwelling as your main residence until you moved out after a number of years. You made the choice to continue to treat the dwelling as your main residence. As you rented the dwelling out, the maximum period you can continue to treat the property as your main residence during your absence is six years from the date you moved out. As you reoccupied the dwelling sometime later as your main residence, the dwelling will be your main residence for the period from when you reoccupied it to when you dispose of it (provided you continue to occupy the dwelling as your main residence).

Calculating your capital gain

You calculate your capital gain for a period where your dwelling was your main residence for only part of your ownership period using the following formula;

Capital gain x Non main residence days/ Days in your ownership period.

where:

Capital gain is calculated as the amount of capital proceeds you receive for the sale of your dwelling, minus the cost base of the dwelling. The cost base will include the market value of the dwelling when you purchased it, along with any other costs that fall into the other elements of the cost base. For more information about the five elements of the cost base, please refer to the Guide to capital gains tax 2009 located on the Australian Tax Office's website.

Non main residence days is the number of days in your ownership period of the dwelling that it was not your main residence. In your case this will be from the date that represents six years after you first rented the dwelling out, until the day before the day that you again occupied the dwelling as you main residence.

Days in your ownership period will be the total number of days that you owned the dwelling. In your case this is from the date of settlement for the purchase of the dwelling, until the date of settlement for the sale of the dwelling.

Note:

As you are an individual, your dwelling will be sold after 21 September 1999, you held the dwelling for at least 12 months, and provided you do not calculate your cost base with reference to indexation, any capital gain made on the disposal is a discount capital gain. In your case you are entitled to reduce the capital gain made by 50% to work out your net capital gain.

You will include the net capital gain in your assessable income when you lodge your income tax return in the year that the CGT event occurs, i.e. the year that you dispose of the dwelling.

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