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Edited version of your written advice
Authorisation Number: 1013133140736
Date of advice: 29 November 2016
Ruling
Subject: Capital gains tax
Question 1
Will you be liable for CGT on the sale of a property you have always used as a main residence, when you have continued to treat the property as your main residence even though you no longer live there?
Answer
No
Question 2
Will you be liable for CGT on the sale of a second property you purchased while you were treating the first property as your main residence?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 20ZZ
The scheme commences on:
1 July 20YY
Relevant facts and circumstances
You purchased a property during the 19UU-VV financial year. This property has always been your main residence.
In the 20WW-XX financial year, you purchased another property. You relocated to this property and kept the first property as a second home. You did not use the first property to produce assessable income.
You will sell the first property during the 20YY-ZZ financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-185
Reasons for decision
The disposal of your first property has triggered CGT event A1 (section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)).
Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence for the entire period you owned it (section 118-110 of the ITAA 1997). If the dwelling is not your main residence for your entire ownership period, you will only be entitled to a partial exemption from capital gains tax under section 118-185 of the ITAA 1997.
However, subsection 118-145(1) of the ITAA 1997 allows you to choose to treat a dwelling as your main residence even though you no longer live in it. You cannot make this choice for a period before a dwelling first becomes your main residence.
This choice needs to be made only for the income year that a CGT event happens to the dwelling, that is, the year that you enter into a contract to sell it. If you make this choice, you cannot treat any other dwelling as your main residence for that period (except for a limited time if you are changing residences).
If you use the dwelling to produce income you can choose to treat it as your main residence for up to six years after you cease living in it. If you are absent more than once during the period you own the home, the six-year maximum period that you can treat it as your main residence while you use it to produce income applies separately for each period of absence.
In your case it is accepted that you have made the election under subsection 118-145(1) of the ITAA 1997, to treat the first property as your main residence for the entire period of ownership. As you have not used this property to produce assessable income, you may treat this property as your main residence indefinitely.
Therefore you can disregard the capital gain from the sale of the first property.
Question 2
Subsection 118-145(4) of the ITAA 1997 states that if you choose to treat a property as your main residence even though you no longer live in it, you cannot treat any other property as your main residence.
In your case, you purchased another property while you were treating the first property as your main residence. You therefore cannot obtain a full main residence exemption on the second property.
Section 118-185 of the ITAA 1997 states that you can get a partial exemption from CGT where a property was your main residence for only part of your ownership period. You will have a CGT liability for the period where you owned both properties concurrently.
Subsection 118-185(2) of the ITAA 1997 states that the formula for calculating your capital gain or loss is as follows:
● CG or CL amount x (non-main residence days / days in your ownership period)
Where:
● CG or CL amount is the capital gain or loss over the entire ownership period
● Non-main residence days is the number of days in the ownership period when the dwelling was not your main residence (i.e. the period from the purchase of the second property to the sale of the first property).
This will need to be taken into account when you sell the second property.
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