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Edited version of your written advice
Authorisation Number: 1012761599602
Ruling
Subject: Main residence exemption
Question 1
Will you be entitled to a full main residence exemption when you sell the property?
Answer
No.
Question 2
Will you be entitled to a partial main residence exemption when you sell the property?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You signed a contract to purchase a property on the understanding that it would be vacant when the contract settled allowing you to move in straight away.
At the time that you signed the contract to purchase the property, you also signed a contract to sell your main residence. Settlement of both contracts occurred in mid-20XX.
As the tenants did not move out of your new property on settlement, you had to rent your old property back from the new owner.
The tenants did not move out until the end of 20XX.
You moved into your new property and made it your main residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118- 185.
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Subsection 118-110(1))b).
Income Tax Assessment Act 1997 Subsection 118-190.
Income Tax Assessment Act 1997 Section 118- 185.
Reasons for decision
Summary
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 you sell the 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 capital gains tax (CGT) event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else. CGT assets include real estate acquired on or after 20 September 1985.
Main residence exemption
Generally, you can ignore a capital gain or loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence.
To get the full exemption from CGT:
• The residence must be your home for the whole period that you owned it (subsection 118-110(1))b) of the ITAA 1997).
• You must not have used the dwelling to produce assessable income (unless the temporary absence rule in section 118-145 of the ITAA 1997 applies) (section 118-190 of the ITAA 1997)
For the main residence exemption to apply for your whole ownership period, you must move into the dwelling as soon as practicable after you purchase the dwelling.
However, the Explanatory Memorandum to the Bill which became the Tax Law Improvement Act (No.1) 1998 states that the main residence exemption is not extended to the situation where you are unable to move into the dwelling because it is being rented out.
In your case, you purchased a property with an existing lease attached to it. The lease expired at the end of 20XX.
You received rental income from the lease for the period between purchase and when you moved into the property.
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 you sell the property.
Partial Main residence exemption
Section 118-185 of the ITAA 1997 states that if a dwelling is your main residence for only part of your ownership period, you will only get a partial exemption for any loss or gain arising from a CGT event that occurs in relation to that dwelling. The capital loss or gain is calculated using the following formula:
Capital gain or loss x Non main residence days*
Total days of your ownership period
(* non main residence days are the number of days where a dwelling was not occupied as your main residence).
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