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Edited version of your written advice
Authorisation Number: 1051371436391
Date of advice: 9 May 2018
Ruling
Subject: Main residence exemption
Question 1
Will the capital gains arising from the sale of your share of the property be disregarded in accordance with Sections 118-110 and 118-145 of the ITAA 1997?
Answer
No
This ruling applies for the following period:
30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
In mid 201X you purchased Y% of a property owned by Individual A and Individual B at XX Street, Suburb A, State B
The property was being used to produce income as a rental and continued in that capacity
The structure of ownership became Individual A and Individual B as joint tenants holding a XX% share as tenants in common in unequal shares with you holding the Y% share
You entered into a contract for the sale of the property on the mid 201X
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-145
Reasons for decision
A capital gain or capital loss an individual makes from a Capital Gains Tax (CGT) event that happens to a dwelling is disregarded under section 118-110 of the ITAA 1997 if the dwelling was the taxpayer's main residence throughout the period it was owned.
The main residence exemption can apply to up to 2 hectares of land adjacent to a dwelling if the land was used primarily for private or domestic purposes in association with the dwelling: section 118-120 of the ITAA 1997.
Section 118-145 of the ITAA 1997 provides that you can continue to treat a dwelling as your main residence during periods of absence. If the dwelling is not used to produce income it can be treated as your main residence indefinitely (subsection 118-145(3) of the ITAA 1997).
If the dwelling is used to produce income the maximum period that you can choose to treat it as your main residence, while you use it for that purpose, is six years (subsection 118-145(2) of the ITAA 1997). You are entitled to another period of six years each time the dwelling again becomes your main residence and then commence using it again to produce income.
In your case, you did not purchase the Y% share until after the property began to be used as a rental and thus fails to meet the requirements of section 118-110 of the ITAA 1997 as it was not your main residence throughout the period you owned it.
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