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Edited version of private ruling

Authorisation Number: 1011542031813

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Ruling

Is the capital gain or capital loss that you make on the disposal of Property B disregarded?

No.

Relevant facts

You reside in your main residence (Property A).

You purchased an investment property (Property B) after 20 September 1985. It has been rented or available for rent since the purchase date.

You are retired.

You plan to sell Property A and move into Property B.

You believe that if you reside in Property B for at least 12 months no capital gains tax will be applied to the future sale of the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 118-110(1).

Income Tax Assessment Act 1997 Section 118-125.

Income Tax Assessment Act 1997 Section 118-185.

Reasons for decision

Generally, you disregard any capital gain or capital loss you make when you dispose of your main residence if it is your main residence throughout your entire ownership period.

Your ownership period is the period between the date of settlement of the contract of purchase and the date of settlement of the contract of sale.

If the property is on two hectares or less, is your main residence for the entire ownership period and you do not it to produce assessable income, the property is fully exempt.

In your case, you acquired Property B after 20 September 1985 and the property has been used to produce income for a period of time commencing when you first purchased the property. Therefore, you are not entitled to a full main residence exemption on the sale of Property B as it will not be your main residence for all of your ownership period.

Partial Main residence exemption

In this situation, a partial exemption may be allowed for the period of time that Property B will be your main residence. The exemption is calculated on a time basis, with the capital gain or capital loss that you make being reduced proportionally. The capital gain or capital loss is reduced according to the number of days the property was not used as your main residence as a proportion of the total ownership period. This is expressed in the formula below:

Non-main residence days

Capital Gain or Capital loss X ----------------------------------------

Days in your ownership period

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