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Edited version of your private ruling
Authorisation Number: 1011984074256
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Ruling
Subject: Capital gains tax and absence rule
Questions and answers:
1. Are you entitled to a full main residence exemption from any capital gain or loss that results from the disposal of your property?
No.
2. Are you entitled to a partial main residence exemption from any capital gain or loss that results from the disposal of your property?
Yes.
3. Are you entitled to apply the six year absence rule provisions to your property?
Yes.
This ruling applies for the following period
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on
1 July 2011
Relevant facts
You and your spouse purchased a block of land after 20 September 1985.
The block of land is less than 2 hectares in size.
You and your spouse built a dwelling on the land and tenanted the property.
After a period of time you and your spouse then moved into the property and occupied it as your main residence.
Due to work purposes you and your spouse moved interstate and tenanted the property from the time that you and your spouse moved out.
You intend to dispose of the property, within six years of moving out.
Relevant legislative provisions
Income Tax Assessment Act 1997, Section 102-20
Income Tax Assessment Act 1997, Section 104-10
Income Tax Assessment Act 1997, Section 118-145
Income Tax Assessment Act 1997, Section 118-185
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make 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.
Under section 104-10 of the ITAA 1997, a CGT event A1 occurs when you dispose of the CGT asset to someone else. You make a capital gain if the capital proceeds from the disposal are more than the assets cost base. You make a capital loss if those capital proceeds are less than the assets reduced cost base.
Main residence exemption
Generally, you can disregard a capital gain or capital loss made on the sale of a dwelling that is your main residence if:
· you move into it as soon as practicable after you acquired it;
· you have occupied the dwelling as your main residence throughout your ownership period;
· the dwelling has not been used to produce assessable income; and
· any land on which the dwelling is situated is less than 2 hectares.
If you are not fully exempt, you may be partially exempt if:
· the dwelling was your main residence during only part of the period you owned it;
· you used the dwelling to produce assessable income; or
· the land on which the dwelling is situated is more than 2 hectares.
Your property has not been your main residence for your entire ownership period as it was first used to earn assessable income when the building of the dwelling was completed.
Therefore no exemption is available prior to you occupying the dwelling as your main residence and you will not be eligible for a full main residence exemption when the property is disposed of in the future.
Partial main residence exemption
If a CGT event happens to a dwelling you acquired on or after 20 September 1985 and that dwelling was not your main residence for the whole time you owned it, you may be entitled to a partial exemption.
Section 118-185 of the ITAA 1997 states that you get a partial exemption for a CGT event that happens in relation to a dwelling or your ownership interest in it if:
(a) you are an individual; and
(b) the dwelling was your main residence for only part of your ownership period; and
(c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.
You are an individual, the dwelling was your main residence for only part of you and your spouses ownership, the interest did not pass to you as a beneficiary and you did not acquire it as a trustee of the estate of a deceased person. Therefore you are entitled to partial main residence exemption under section 118-185 of the ITAA 1997.
For a partial exemption you calculate your capital gain using the following formula:
Capital gain x non-main residence days
Total number of days in your ownership period
* Where non main residence days are the amount of days where the dwelling was not occupied or elected as your main residence
Six year absence rule
Section 118-145 of the ITAA 1997 provides that you can continue to treat a dwelling as your main residence during periods of absence.
If the dwelling is not used to produce income it can be treated as your main residence indefinitely.
If the dwelling is used to produce income the maximum period that you can choose to treat it as your main residence, while you use it for that purpose, is six years.
You are entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, your main residence.
If you make this choice, you cannot treat any other dwelling as your main residence while you apply this section.
You first moved into the property and occupied it as your main residence after it was first used to earn assessable income, therefore you are entitled to apply main residence provisions prior to you moving into the property. After a period you and your spouse moved out of the residence and made it available for rent. As you had established the property as your main residence and have continued to elect the property to be your main residence you are entitled to apply the six year absence rule.
Accordingly, as the property will be disposed of within a period of six years from the time that you moved out of the property and you have continued to elect the property to be your main residence, you are entitled apply the six year absence rule under 118-145 of the ITAA 1997.
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