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Edited version of your private ruling
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Ruling
Subject: Capital gains tax - principle residence
Question and answer
Question:
Can you claim the main residence exemption for capital gains tax (CGT) purposes on the disposal of your current main residence where the main residence is rented out for less than six years?
Answer:
Yes
This ruling applies for the following periods:
Year ended 30 June 2009
The scheme commences on:
1 July 2008
Relevant facts and circumstances
The property when purchased was your principle place of residence.
You lived in the property until you moved to your business premises but still retained the family home as your principle place of residence.
You rented your property out for four years
You sold your main residence property without moving back into it
Relevant legislative provisions
Section 118-192 Income Tax Assessment Act 1997
Section 118-145 Income Tax Assessment Act 1997
Section 102-20 Income Tax Assessment Act 1997
Section 104-10 Income Tax Assessment Act 1997
Section 118-110 Income Tax Assessment Act 1997
Reasons for decision
Capital gains tax (CGT) is the tax you pay on any capital gain you make and include on your annual income tax return. You make a capital gain or capital loss if and only if a CGT event happens (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).
CGT event A1 happens when you dispose of a CGT asset to someone else (section 104-10 of the ITAA 1997
According to section 118-110 of the ITAA 1997, you can disregard a capital gain or capital loss from a CGT event that happens to a property that is your main residence if:
· · you are an individual
· · the property was your main residence throughout your ownership period
· · the property did not pass to you through a trust or a deceased estate, and
· · the property is less than two hectares.
There is no restriction on the length of time that you live in the property before it is considered to be your main residence
Subsection 118-145(1) of the Income Tax Assessment Act 1997 (ITAA 1997) allows a taxpayer to make a choice that a dwelling continues to be treated as their main residence even though it has ceased to be so. The choice can be made for a total of six years where a dwelling was used for the purpose of gaining or producing assessable income, or indefinitely where it was not used for this purpose.
Subsection 103-25(1) of the ITAA 1997 details how the choice is to be made. The section states that a choice made under Part 3-1 or Part 3-3 of the ITAA 1997 must be made:
· by the day you lodge your income tax return for the income year in which the relevant CGT event happened; or
· within a further time allowed by the Commissioner.
A taxpayer is entitled to make this choice in the income year in which they sell the property. If the taxpayer does not include the capital gain or capital loss from the sale of the first property in their tax return, this is sufficient evidence of their choice (subsection 103-25(2) of the ITAA 1997).
In your case you wish to choose to treat a dwelling, as your main residence from the time you stopped living in it to when you sold it. As you had previously occupied the dwelling as your main residence and subsequently used the dwelling for the production of income for less than six years, you are entitled to apply a continuing main residence absence choice, and a full exemption from CGT, in respect of your ownership interest in the dwelling.
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