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Edited version of private ruling
Authorisation Number: 1011549578117
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
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Ruling
Subject: Capital gains tax - Main residence used to produce assessable income
Question: Is the market value of the dwelling at the time you moved into it used as your cost base?
Answer: No.
This ruling applies for the following period:
Year ended 30 June 2009
The scheme commences on:
1 July 2008
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
In the late 1990's you purchased a dwelling whilst you were overseas.
The dwelling was rented out for a period of more than five years
At the time you intended to establish it as your main residence upon your return from overseas.
When you returned to Australia and you had the property professionally valued. The property was valued at $X.
You and your family moved into the dwelling and established it as your main residence.
Mid last year you disposed of the dwelling making a capital gain.
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 118-185.
Income Tax Assessment Act 1997 Section 118-192.
Reasons for decision
Main residence exemption
Generally, you can disregard any capital gain or capital loss realised on the disposal of a dwelling that was your main residence. To get the full exemption from capital gains tax (CGT):
· the dwelling must have been your home for the whole period you owned it
· the dwelling must not have been used to produce assessable income; and
· any land on which the dwelling is situated must be two hectares or less.
Only a partial exemption from CGT is available in circumstances where, for example, your dwelling has been used for income producing purposes during your ownership period.
There is a special rule which is applied in working out a capital gain or capital loss on a dwelling which has been a main residence and which has also been used for income producing purposes. That rule applies if:
· only a partial main residence exemption would be available because the dwelling was used for the purpose of producing assessable income during your ownership period
· the income producing use started after 20 August 1996, and
· you would have been entitled to a full main residence exemption if you had have entered into a contract to dispose of the dwelling just before the first time it was used for income producing purposes.
If these conditions are satisfied, you are taken to have acquired the dwelling at the time you first started using it for income producing purposes, for its market value at that time.
As you rented out your dwelling from the time of purchase until you moved in, you do not meet the third condition and this special rule cannot apply. Accordingly, the dwelling was not your main residence from the date of purchase. You occupied the dwelling as your main residence from your return from overseas until it was disposed of.
Therefore, the date of acquisition for your cost base is the date you purchased the dwelling and not the market value of the property on date you moved back in after renting it out.
Calculating partial main residence exemption
To calculate your capital gain on the property the following formula must be used:
number of days in your ownership period when
total capital gain made the dwelling was not your main residence
total number of days in your ownership period
For further information please see the enclosed information sheet which has been taken from the Guide to capital gains tax 2009-10 (NAT 4151-6.2009). Information is also available on our website - www.ato.gov.au.
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