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Edited version of your written advice
Authorisation Number: 1012735935454
Ruling
Subject: Main residence exemption
Question 1
Are you entitled to a partial main residence exemption on your property?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
• You purchased a property in the mid 1990's as your main residence.
• A portion of your home was rented out for two periods during your ownership.
• You included the rental income and deductions in your income tax returns.
• The remainder of the time the home was used as your main residence.
• You sold the property during the 2013-14 financial year.
• The land on which the dwelling is situated was less than two hectares.
• You did not own any other property during this time.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Subsection 118-110(1)(b).
Income Tax Assessment Act 1997 Subsection 118-175.
Income tax Assessment Act 1997 Section 118- 185.
Income tax assessment Act 1997 Section 118-190.
Reasons for decision
Summary
You are entitled to a partial main residence exemption on the sale of your property.
Detailed reasoning
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 CGT event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else.
Under section 108-5 of the ITAA 1997 a CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include part of or an interest in property or a legal or equitable right that is not property. You purchased your property in the mid-1990's and sold it during the 2013-14 financial year, this triggered CGT event A1.
Main residence exemption
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. You are only able to have one main residence at any one time.
The property was your main residence from the date of purchase until you sold it.
However, a portion of your residence was rented out for a number of periods during your ownership.
As the property has been used to produce assessable income during your ownership period, you are not entitled to a full main residence exemption.
Calculation of capital gain or loss
In determining the amount of capital gain or capital loss, the Commissioner will have regard to the amount of the capital gain or capital loss, as the case may be, made on the disposal of the dwelling and also the extent to which, and the period for which, it was used for income producing purposes.
Generally speaking, unless the part of the dwelling used to gain assessable income is distinctly of a greater or lesser proportionate value than the rest of the dwelling, the extent to which it was used to gain assessable income will be determined on an area basis. This amount of the capital gain or capital loss will also be determined having regard to the period for which that part of the dwelling was used:
• by the individual; or
• by any another person,
to gain assessable income.
In your situation, you have calculated that a portion of your residence was rented out during your period ownership.
The formula for apportionment is as follows:
Capital gain |
x |
Percentage of floor area not used as main residence |
x |
Percentage of period of ownership that that part of the home was not used as a main residence |
= |
Taxable portion |
The formula to calculate the percentage of period of ownership that that part of the home was not used as a main residence is as follows:
Non main residence days ÷ Total days of your ownership period
Note: the non-main residence days is the number of days that a portion of your main residence was rented (including the periods of time that the house was rented).
In your case, you will need to work out the number of days in total that you owned the property. You will then need to work out the number of days (adding together the periods it was rented) that you rented out a portion of your house.
Information on how to calculate the portion of the capital gain that is taxable is available on our website www.ato.gov.au (search 'QC 17193').
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