1011562574957 | Legal database

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Edited version of private ruling

Authorisation Number: 1011562574957

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Ruling

Subject: Capital gains tax and the main residence exemption

Question

Are you able to apply the absence rule for the period you were not living in the property and get the main residence exemption?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You and your former spouse purchased a home a number of years ago in joint names.

This property was your main residence.

You moved out when your marriage broke down some years later.

You moved and your former spouse stayed in the family home with your children.

You did not consider any other property as your main residence.

You reached an agreement with your former spouse.

You agreed to make a payment to your former spouse in return for the property to be transferred into your name only.

The agreement was a binding financial agreement.

The title was transferred into your name.

You then rented the property for less than 6 years.

A contract to sell the property was entered into and settlement took place.

You have made an election for the property to be your main residence under the absence rule.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision

Main residence exemption

The main residence exemption under subdivision 118-B of the ITAA 1997 may allow a taxpayer to disregard all or part of any capital gain or capital loss they made from a CGT event that happens to their ownership interest in a dwelling where the dwelling was their main residence.

The main residence exemption allows the capital gain or loss from the disposal of a dwelling to be disregarded for CGT purposes if the taxpayer is an individual, the dwelling was the taxpayers main residence throughout the ownership period and the interest did not pass to the taxpayer as a beneficiary in, or as the trustee of, the estate of a deceased person.

However, subject to the absence rule, a taxpayer will only get a partial exemption for a CGT event that happens in relation to their ownership interest in a property if the dwelling was their main residence for only part of their ownership period.

In your case you had an ownership interest in the dwelling from the purchase of the property until the sale of the property.

You have always only had one main residence being the family home.

The absence rule

The absence rule allows a taxpayer to choose to treat a dwelling as their main residence even though they no longer live in it. A taxpayer cannot make this choice for a period before a dwelling first becomes their main residence.

This choice needs to be made only for the income year that the CGT event happens to the dwelling for example, the year that a taxpayer enters into a contract to sell it.

If a taxpayer owns both a dwelling that they can choose to treat as their main residence after they no longer live in it, and a dwelling they actually lived in during that period of time then they make the choice for the income year they enter into the contract to sell the first of those two dwellings.

If a taxpayer makes this choice, they cannot treat any other dwelling as their main residence for that period.

Dwelling used to produce income

If a taxpayer does not use their dwelling to produce income, for example, it is left vacant or used as a holiday home then they can treat the dwelling as their main residence for an unlimited period after they stop living in it.

If a taxpayer does use their dwelling to produce income, for example, they rent it out or it is available for rent, they can choose to treat it as their main residence for up to six years after they stop living in it.

In your case you rented your home out for less than 6 years prior to selling it. During the period it was rented you did not treat any other dwelling as your main residence.

You are therefore entitled to the main residence exemption on your property.

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