Edited version of private ruling

Authorisation Number: 1011541461135

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Ruling

Subject: Capital gains tax- main residence exemption

Question 1

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

Advice/Answers

Yes.

This ruling applies for the following period

Year ending 30 June 2012

Year ending 30 June 2013

Relevant facts

You purchased a property in 200X.

You moved into the property immediately after the purchase and resided there for a number of months.

The property was available for rent after your departure and has been rented out since.

Prior to moving the dwelling, you resided at another dwelling which is a rental property.

After leaving the dwelling you returned to your previous dwelling, the rental property.

You stored some furniture at the rental property during the time you purchased property.

Upon leasing the purchased property you returned to reside at the rental property as you found that the commute from the purchased property to your employers' premises was not suitable.

You will continue to treat the purchased property as your main residence.

Settlement of the disposal of your purchased property will occur prior the property being income producing for more than six years and you will make a capital gain on the disposal of the property.

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 102-20

Income Tax Assessment Act 1997 Section 103-25

Reasons for decision

Capital gains tax (CGT) is the tax you pay on any capital gain you include on your annual income tax return. You make a capital gain or capital loss as a result of a CGT event.

The most common CGT event is event A1. CGT event A1 happens when you dispose of an asset to someone else, for example if you sell or otherwise dispose of a dwelling. In your case, CGT event A1 will happen when you dispose of the property.

Under subdivision 118B of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or loss that you make form a CGT event may be ignored if the event is the disposal of your main residence. Generally, you disregard any capital gain or capital loss made on a main residence where:

- You move into it as soon as practicable after you acquired it.

- You have occupied the dwelling as your main residence throughout your ownership period.

- The dwelling has not been used to produce assessable income;

- Any land on which the dwelling is situated is 2 hectares or less.

There are rules which may limit or negate the exemption such as the determination of whether a dwelling is a taxpayer's main residence as outlined in the Guide to capital gains tax 2009. The guide lists factors that suggest whether a dwelling is a taxpayer's main residence. The factors listed are:

- Length of time the taxpayer has lived in the dwelling

- The place of residence of the taxpayers' family

- Whether the taxpayer has moved his or her personal belongings into the dwelling

- The address to which taxpayer has his or her mail delivered

- The taxpayers address on the electoral roll

- The connection of services, such as telephone, gas and electricity; and

- The taxpayer's intention in occupying the dwelling

The relevance and weight to be given to each of these or will depend upon the circumstances of each particular case.

Section 118-145 of the ITAA 1997 provides that once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence during certain periods of absence. This choice needs to be made only for the income year that the CGT event happens to the dwelling. If you make this choice, you cannot treat any other dwelling as your main residence for that period. If you use the dwelling to produce income, you can continue to treat it as your main residence for up to six years after you stop living in it.

In your case:

You resided at the property for a period of a number of months.

You moved your personal belongings and household items into the dwelling.

You directed your mail to this address.

You connected all the necessary services to the property in your name.

You changed your address on the electoral roll to that of the property.

You intended to occupy the dwelling as your main residence.

Based on the above factors we accept that you established the dwelling as your main residence from the time you began residing in the dwelling until you moved out.

As you will make the absence choice and the property will not be income producing for more than six years the dwelling will be considered to have been your main residences for all of your ownership period and any capital gain made on the disposal of the property is disregarded.

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