Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private ruling

Authorisation Number: 1011603849086

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.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Capital Gain-Main Residence Exemption

Question 1

Are you entitled to the full main residence exemption upon disposal of property X?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

Relevant facts and circumstances

The taxpayer and their spouse jointly purchased multiple properties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 118-B

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-145

Income Tax Assessment Act 1997 subsection 118-145(1)

Income Tax Assessment Act 1997 subsection 118-145(2)

Income Tax Assessment Act 1997 subsection 118-145(3) and

Income Tax Assessment Act 1997 subsection 118-145(4).

Reasons for decision

Main residence exemption

Subdivision 118-B ITAA 1997 contains the CGT main residence exemption. The basic case is contained in section 118-110 ITAA 1997 and generally provides that an individual can disregard a capital gain that arises from disposing of his or her main residence.

Generally, to get the full exemption from CGT:

However, section 118-145 ITAA 1997 extends the main residence exemption in certain situations.

Treating a dwelling as your main residence after you move out

As a general rule, a dwelling is no longer a taxpayer's main residence once they stop living in it. However, in some cases section 118-145 ITAA 1997 extends the main residence exemption. In these cases a taxpayer can choose to have a dwelling treated as their main residence for capital gains tax (CGT) purposes even though they no longer live in it. Note: a taxpayer can only make this choice for a dwelling that you have first occupied as your main residence. 

If a taxpayer does not use the dwelling to produce income, they can treat the dwelling as your main residence for an unlimited period after they cease living in it (subsection 118-145(3) of the ITAA 1997).

Where a taxpayer uses the dwelling to produce income, they can choose to treat it as their main residence while they use it for that purpose for up to six years after they cease living in it. A taxpayer is entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, their main residence (subsection 118-145(2) of the ITAA 1997).

If a taxpayer makes this choice, they cannot treat any other dwelling as their main residence for that period (subsection 118-145(4) of the ITAA 1997).

Application to your circumstances

Under the provisions set out in section 118-145 of the ITAA 1997 you can elect to continue to treat Property X as your main residence after you moved out of it until sale of the property as the period you used it to produce income during your absence was not more than six years. As stated above, if you make this choice, you cannot treat any other dwelling as your main residence for this period

Conclusion

You will be entitled to the main residence exemption for your entire ownership period of Property X. Therefore, any capital gain or capital loss made on the disposal of this property is disregarded. The capital gains apportionment question does not arise because the capital gain is fully exempt.

Note: Upon disposal of the current residence, one of the properties (in which the taxpayer is currently living) the taxpayer will not be entitled to the full the main residence exemption as they have made the choice that property X was their main residence for the relevant period of time. This choice is evident by you declaring the capital gain on sale of another property.

Therefore, upon disposal of the taxpayer's current residence, they will not be entitled to the main residence exemption for the relevant period as for this period property X was treated as their main residence. In working out how much of the capital gain on the disposal of the taxpayer's current residence Property X (when sold) the apportionment is as follows:

Capital Gain X Number of days property was not your main residence

Number of days in ownership period

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).