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Edited version of your written advice

Authorisation Number: 1012702619014

Ruling

Subject: CGT - main residence exemption

Question

Will the capital gains tax main residence exemption apply from the date you acquired the dwelling?

Answer:

No.

This ruling applies for the following periods

Year ended 30 June 2015

The scheme commences on

1 July 2014

Relevant facts and circumstances

You signed a contract to purchase a dwelling.

At time of purchase, there was a residential tenancy agreement in place.

The tenant occupied the dwelling further past their tenancy agreement until your own rental arrangements ceased.

You then moved into the dwelling.

You state that prior to this date it was not practicable to occupy the dwelling.

You have now rented out the property.

You haven't purchased another property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-135

Income Tax Assessment Act 1997 Section 118-145

Income Tax Assessment Act 1997 Subsection 118-185(2)

Reasons for decision

Section 118-135 of the Income Tax Assessment Act 1997 (ITAA 1997) provides an extension to the main residence exemption if a dwelling becomes the taxpayer's main residence by the time it was first practicable for them to move into it after they acquired their ownership interest in it.

First practicable

The expression 'first practicable' takes account of situations where, for example, there is a delay in moving in because of illness or other reasonable cause.

The main residence exemption does not extend to those cases where an individual is unable to move into the dwelling because it is being rented out. It, however, would cover a period after the end of the tenancy if the owner could not take up residence immediately because of the nature of repairs required to the dwelling.

You purchased a dwelling which was occupied by a tenant under a pre-existing rental contract. As you also occupied another dwelling under a rental contract, you did not move into the dwelling for several months. The fact that there was a rental contract in place on your purchased dwelling and you had a rental contract of your own, is not sufficient for you to be entitled to the extension of time granted under section 118-135 of the ITAA 1997. You did not occupy the dwelling when it was first practicable to do so.

Ownership period

An individual's ownership period commences when settlement occurs (transfer of the certificate of title) and ends similarly. It is in this period that an individual could have used the dwelling as their main residence. It is for this reason that the ownership period is used in calculating a taxpayer's main residence exemption, rather than the contract dates.

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. 

You are entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, your main residence. The Commissioner does not have any discretion to extend the six year period.

If you make this choice, you cannot treat any other dwelling as your main residence while you apply this section.

After residing in the dwelling, you rented it out and it has been rented ever since. As you have not made any other dwellings your main residence and the period will not exceed six years, you will be entitled to continue to treat the dwelling as your main residence.

Apportionment

Therefore, you will be entitled to treat the dwelling as your main residence from the date you occupied the dwelling.

As you are not entitled to a full main residence exemption on the sale of your property, you will need to apportion any capital gain made on the disposal of the dwelling in accordance with subsection 118-185(2) of the ITAA 1997.

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