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Edited version of private ruling
Authorisation Number: 1011819058128
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Ruling
Subject: Capital gains tax and the main residence exemption
Question:
Are you entitled to a partial main residence exemption for the period that a family member occupied your property?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You purchased a home a number of years ago.
The house was purchased for a family member to live in.
The family member eventually moved out.
You did not reside in the property at any stage.
You rented the house out for a period of time.
You then sold the house.
A gain was made on this sale.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 section 118-110
Income Tax Assessment Act 1997 section 118-35
Income Tax Assessment Act 1997 Section 118-185
Reasons for decision
Capital gains tax
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer makes a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985.
A taxpayer makes a capital gain if their capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if a taxpayer received more for an asset than they paid for it.
A taxpayer makes a capital loss if their reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset.
Capital gains tax is not a separate tax, it forms part of a taxpayer's assessable income and is taxed at each taxpayer's marginal tax rate.
CGT - main residence
Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income.
Taxation Determination TD 51 states that whether a dwelling is a taxpayer's sole or principal residence is an issue which depends on the facts in each case. Some factors may include, but are not limited to:
· the 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 the taxpayer has his or her mail delivered
· the taxpayers address on the Electoral Roll
· the connection of services such as telephone, gas and electricity
· the taxpayers intention in occupying the dwelling
Moving into the dwelling
To establish a dwelling as a main residence you must move in as soon as practicable. The term as soon as practicable is used in section 118-135 of the ITAA 1997 to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the property became your main residence on the date you acquired it (that is, you would have to physically move in on that day).
Partial Main residence exemption
Section 118-185 of the ITAA 1997 states that if a dwelling is your main residence for only part of your ownership period, you will only get a partial exemption for any loss or gain arising from a CGT event that occurs in relation to that dwelling. The capital loss or gain is calculated using the following formula:
Capital gain or loss x Non main residence days*
Total days of your ownership period
(*non main residence days are the number of days where a dwelling was not occupied as your main residence).
In your case you were the owner of the property and you have never lived in the property and purchased it purely for your family members use.
The family member was not the owner of the property.
The family member used it and considered it to be their main residence, but they did not dispose of the property as they were not the owner of the property.
To be entitled to a full main residence or partial main residence exemption you as the owner must have lived in the property. You did not live in the property therefore you are not entitled to a full or partial main residence exemption on the property.
Accordingly the gain you made on the property when you sold it must be included in your income tax return.
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