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Edited version of your written advice

Authorisation Number: 1051299151384

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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.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.

Date of advice: 26 October 2017

Ruling

Subject: CGT main residence exemption

Question 1

Are you entitled to a full main residence exemption on your property?

Answer

No.

Question 2

Are you entitled to a partial main residence exemption on your property?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

Around late 20XX you negotiated a contract to purchase an apartment overseas (the property).

You were able to move into the property in late 20XX under a rental arrangement with the seller.

You took possession of the property a few months later.

The title to the property is in your name only.

You lived in the property until early 20YY.

You have rented the property since early 20YY.

You have owned no other property.

You purchased the property for approximately AUD$ XXX and you believe the approximate market value is AUD$ XXXX.

You are contemplating the sale of this property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Income tax Assessment Act 1997 Subdivision 118-145

Reasons for decision

Generally, if you are an individual you can ignore a capital gain or capital 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 absence rule

Section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997), also known as the absence rule, allows you to elect to treat a dwelling as your main residence even though you no longer live in it. If you use the dwelling to produce assessable income you can only claim main residence exemption for a period of up to 6 years.

Section 118-145(4) of the ITAA 1997 states you cannot treat any other dwelling as your main residence in the period you choose to treat the vacated dwelling as your main residence.

Rule for home first used to produce income rule

In certain circumstances, if you start using your main residence to produce income, there is a special rule that affects the way you calculate your capital gain or capital loss. In working out the amount of capital gain or capital loss, the period before the dwelling is first used to produce income is not taken into account.

You are taken to have acquired the dwelling at the time you first started using it for income producing purposes (for example the time you commenced leasing the dwelling to tenants) for its market value at that time if all of the following apply:

If you made the choice to continue to treat a dwelling as your main residence after the dwelling ceased to be your main residence, and the dwelling is fully exempt under the absence rule, the ‘home first used to produce income’ rule does not apply.

If you made the choice to continue to treat a dwelling as your main residence after the dwelling ceased to be your main residence, but the dwelling is not fully exempt under the absence rule (for example because you leased it for more than six years), the ‘home first used to produce income’ rule does apply and you will only be entitled to a partial exemption.

Application to your circumstances

In your case, you acquired the property in 20XX and it was you main residence. You moved out and began to lease the property in early 20YY. You have no other property that you consider to be your main residence.

However, as the property has been used to produce income for more than six years you will only be entitled to a partial main residence exemption.

Additionally as the property was first used to produce income after August 1996 and you would have been entitled to a full exemption if you sold the property immediately before you used it to produce income, the home first used to produce income rule will apply.

Further Information

The following example may assist you in calculating any capital gain you may make in the future:

Mary chooses to use the discount method to calculate her capital gain and, because she has no other capital gains or capital losses, she includes a net capital gain of $34,947 ($69,894 x 50%) on her 2018 tax return.

Further information on the calculation of the capital gain/loss from a partial exemption, home first used to produce income rule and elements of the cost base can be found on our website ato.gov.au and entering Quick Code QC52195, QC52191 and QC52174 respectively.


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