1051297456819 | Legal database

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Edited version of your written advice

Authorisation Number: 1051297456819

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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.

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Date of advice: 20 October 2017

Ruling

Subject: Capital gains tax- main residence exemption

Question 1

Are you entitled to the full capital gains tax (CGT) main residence exemption on the disposal of your share of a property that you did not a acquire a legal ownership interest in until after you ceased living in it, if your spouse nominates that property as their main residence for the relevant period?

Answer

Yes

This ruling applies for the following periods:

Income year ended 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

Your spouse purchased the dwelling.

You began living in the dwelling with your spouse in 200X.

In late 201X you and your spouse ceased living in the dwelling and travelled around Australia.

The dwelling has been rented out from late 201X.

You returned from travelling in early 201Y but you did not move back into the dwelling.

You later purchased land and built another house.

Your spouse transferred 50% ownership interest in the dwelling to you in mid-late 201Z.

The dwelling was sold in mid-late 201A with settlement to occur with 30 days.

Your spouse will make an election to treat the dwelling as their main residence from the time that you both ceased living in the property until it was sold when they lodge their 201B income tax return.

You will nominate the dwelling as your main residence.

Assumptions

● The land on which the dwelling is situated is not more than 2 Ha.

● Your spouse had established the dwelling as their main residence prior to you both ceasing to live in it in late 201X.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 103-25

Income Tax Assessment Act 1997 Subdivision 115-A

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-170

Income Tax Assessment Act 1997 Section 118-145

Income Tax Assessment Act 1997 Subsection 995-1(1)

Further issues for you to consider

We have limited our ruling to the questions raised in your application. There may be related issues that you should consider including:

● This ruling only applies to your personal circumstances and does not consider whether your spouse is eligible for a full main residence exemption in relation to the dwelling.

● Generally, you can only have one main residence at any time. This means that you will not be entitled to claim the full main residence exemption in relation to your current home (or any other dwelling) for the period that you treat the dwelling as your main residence.

● As noted in the reasons for decision, you and your spouse may each nominate different main residences or the same main residence for a period. You and your spouse may need to consider this in relation to the period from when you started living together and when you ceased living in the dwelling, or earlier if you became spouses prior to living together.

You may apply for another ruling on this or any other matter.

Reasons for decision

Summary

You are entitled to a full CGT main residence exemption on your share of the sale proceeds of the dwelling because you are entitled to nominate the main residence of your spouse as your main residence.

Your spouse has elected to continue to treat the dwelling as their main residence from when you both ceased living in the dwelling in late 201X until settlement of the sale in mid-late 201A. Accordingly, if you nominate the dwelling as your main residence for that period, the absence choice will also apply to you.

Detailed reasoning

Main residence exemption

Generally, you disregard a capital gain made on the disposal of a dwelling that is your main residence if the dwelling was your home for the whole period you owned it, the dwelling was not used to produce assessable income, and any land on which the dwelling is situated is not more than 2 hectares.

Main residence of your spouse

'Spouse' is defined in the Income Tax Assessment Act 1997 (ITAA 1997) to include a person who, although not legally married to a person, lives with the person on a genuine domestic basis as the person's husband or wife.

If, during a period, you have a different main residence to your spouse, you and your spouse must either choose one of the dwellings as the main residence of you both, or each nominate separate dwellings as your main residences for the period.

If you make the choice to nominate separate dwellings as your main residences and your ownership interest in that dwelling is greater than 50% you will only be entitled to a maximum 50% main residence exemption for the period that you are maintaining separate main residences.

There is nothing to prevent either spouse from nominating the other's dwelling as their main residence even though they do not have an ownership interest in that dwelling.

Absences

If a dwelling ceases to be your main residence and you use the dwelling to produce assessable income, you can choose to treat the dwelling as your main residence for up to six years after you stop living in it. This is known as an absence choice.

This choice can be made each time a taxpayer moves out of their main residence and commences renting out the dwelling.

If you make this choice, you cannot treat any other dwelling as your main residence for that period.

Making a choice

A main residence choice must be made:

● by the day you lodge your income tax return for the income year in which the relevant CGT event happened, or

● within a further time allowed by the Commissioner.

Application to your circumstances

In your case, you and your spouse ceased living in the dwelling in late 201X, and it has been used to produce assessable income from late 201X.

Your spouse will make an election to continue to treat the dwelling as their main residence from when you ceased living in the property, until the settlement of sale in mid-late 201A when they lodge their 201B income tax return.

This period is less than six years allowed under the absence choice, so the capital gains tax main residence exemption will continue to apply during this period.

Because the dwelling will be your spouse’s main residence for the period, you are entitled to nominate the property as your main residence for that period as well. You are not prevented from nominating the property as your main residence because you did not acquire a legal ownership interest in the property until after you ceased living in the property.

Accordingly, if you nominate the dwelling as your main residence for the period the absence choice will also apply to you and you will be entitled to a full main residence exemption on your share of the sale of the property.

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