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Ruling
Subject: CGT - main residence
Question and answer
Are you entitled to disregard in full the capital gain or capital loss made on the disposal of your dwelling where your period of absence is less than six years?
Yes.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You purchased a residential property (property A) and lived in it as your main residence.
The property was situated on less than 2 hectares of land.
You purchased a second property (property B). This property was not rented out.
You rented out property A for two years.
You then lived in property B for two years while property A was rented out.
You continued treating property A as your main residence during the time it was rented.
You returned to live in property A for a few weeks until you sold it.
After the sale of property A you returned to live in property B.
You wish to claim the main residence exemption for property A for the whole period of ownership.
You will not claim the main residence exemption for property B for the same period property A is treated as your main residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-110
Reasons for decision
Main residence exemption
Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can fully disregard a capital gain or capital loss made from a capital tax (CGT) event that happens to your main residence. To obtain the full exemption from CGT:
ð the dwelling must have been your home for the whole period you owned it
ð you must not have used the dwelling to produce assessable income, and
ð any land on which the dwelling is situated must be two hectares or less.
Continuing main residence status after dwelling ceases to be main residence
In some cases, a taxpayer can choose to treat a dwelling as their main residence even though they no longer live in it. They cannot make this choice for a period before a dwelling first becomes their main residence.
If a dwelling is used to produce income you can choose to treat it as your main residence for up to six years after you stop living in it (subsection 118-145(2) of the ITAA 1997).
If the taxpayer makes this choice, they cannot treat any other dwelling as their main residence for that period.
In your situation, you purchased a property (property A) which was your main residence. You then moved out and rented it for a period of two years until you sold it. You elected to treat it as your main residence for the whole period of ownership.
Although you purchased another property (property B) and lived in it you have not elected to treat that as your main residence during the period you chose property A as your main residence.
Therefore, you are entitled to a full main residence exemption on the sale of property A.
Note
If and when you sell the property you are now living in (property B) you will not be entitled to a main residence exemption for the period of time you elected to treat property A as your main residence.
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