Edited version of private advice

Authorisation Number: 1052320183946

Date of advice: 17 October 2024

Ruling

Subject: Main Residence exemption

Question 1

Are you entitled to a full main residence exemption on the sale of your property under subdivision 118-B of the ITAA 1997?

Answer

No.

Question 2

Are you entitled to a partial main residence exemption on the sale of your property under subdivision 118-B of the ITAA 1997?

Answer

Yes.

Question 3

Is each ownership interest in the property assessed separately for the purpose of assessing your entitlement to the main residence exemption?

Answer

Yes.

Question 4

Does section 118-185 apply to the 50% interest in the property you acquired on XXX?

Answer

Yes.

Question 5

Does section 118-200 apply to the 50% interest in the property you inherited on XXX?

Answer

Yes.

Question 6

Does section 118-192 apply to either interest in the property?

Answer

Yes, in relation to the 50% interest you purchased in the property.

This ruling applies for the following period:

Year ended 30 June XXX

The scheme commenced on:

1 July XXX

Relevant facts and circumstances

Your grandparents built and lived in the home prior to XXX at XXX.

Your grandparent 1 passed before your grandparent 2. When your grandparent 2 passed on XXX, the property was transferred to your parent and relative in equal shares. Your parent and relative were tenants in common. You lived in the property, rent free from XXX.

On XXX you purchased your relative's 50% interest in the property for XXX. The property was valued at XXX at the time. You and your parent now had equal share ownership in the property in which you continued to live in rent free.

On XXX you moved out of the property, and it was made available for rent.

On XXX the property was no longer available for rent and you had work done to the house.

On XXX you resumed living in the property rent free.

On XXX your parent passed, and you inherited their 50% ownership in the property as sole beneficiary. You continued to live in the property as sole owner.

On XXX you moved out of the property which was made available for rent.

On XXX the property was no longer available for rent and you resumed living there.

You continued to treat the property as your main residence after moving out and during the periods the property was available for rent.

On XXX you moved out of the property which was made available for rent.

On XXX you purchased an additional property at XXX and lived there in that property.

On XXX the XXX property was no longer available for rent and you did some work/repairs to prepare to sell the property.

You sold the XXX property on XXX.

The property was not more than two hectares.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 subdivision 118-B

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-185

Income Tax Assessment Act 1997 section 118-200

Income Tax Assessment Act 1997 section 118-192

Reasons for decision

Issue Main Residence

Question 1

Are you entitled to a full main residence exemption on the sale of your property under subdivision 118-B of the ITAA 1997?

Detailed reasoning

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer can disregard a capital gain or capital loss made from a Capital Gains Tax (CGT) event that happens to a dwelling that is their main residence. To qualify for the full exemption, the dwelling must have been your main residence throughout your ownership period and must not have been used to produce assessable income.

Subdivision 118-B of the ITAA 1997 provides that a capital gain or loss made from a CGT event which occurs in relation to a dwelling that is the main residence of a taxpayer is excluded from the operation of the CGT provisions.

A capital gain or loss from a dwelling is disregarded if the taxpayer is an individual and the dwelling was the taxpayer 's main residence throughout the ownership period and the interest did not pass to the taxpayer as a beneficiary in, or as the trustee of, the estate of a deceased person.

A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if:

•         you are an individual

•         the dwelling was your main residence throughout your ownership period (section 118-110 of the ITAA 1997)

•         the property was not used to produce assessable income, and

•         any land on which the dwelling is situated is not more than two hectares.

Section 118-145 of the ITAA 1997 provides the absences rule that if a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.

If you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.

You resided at the property rent free from 19YY. You acquired your 50% ownership interest in 19YY. You inherited the other 50% ownership on your parents death in 20YY.

You moved out of the property and first made it available for rent in 19YY. It was used to earn assessable income for a continuous period of more than six years from 20YY to 20YY. On DD March 20YY the six-year absence period finished. You did not move back into the property and subsequently sold the property.

Once the period you have used the property to earn assessable income is greater than six years, the absence choice under section 118-145 of the ITAA 1997 is no longer effective. As the XXXX property was not your main residence for the entire period of your ownership, you are not eligible for a full main residence exemption on disposal of the dwelling.

Question 2

Are you entitled to a partial main residence exemption on the sale of your property under subdivision 118-B of the ITAA 1997?

Detailed reasoning

The main residence provisions contained in subdivision 118-B of the ITAA 1997 allow an individual to disregard a capital gain or capital loss relating to the disposal of a dwelling which was that person's main residence.

If a CGT event happens to a dwelling you acquired on or after 20 September 1985 and that dwelling was not your main residence for the whole time you owned it, you are entitled to a partial exemption.

To obtain a partial main residence exemption, you must have initially established the dwelling as your main residence. Where the dwelling is used to produce assessable income, you can nominate the dwelling as your main residence for up to six years before your full exemption is reduced under section 118-145 of the ITAA 1997. The six-year period will start again if you move back into the dwelling and re-establish it as your main residence, before using it for another period of income production.

If you own more than one dwelling during a particular period, only one of them can be your main residence at any one time.

In your case, you purchased a 50% interest in the XXX property in XXX and inherited the other 50% interest in XXX. You treated the property as your main residence including the periods where it was made available for rent.

From the XXX, while it was still available for rent, the 6 year absence period ended. You did not move back in and the property was subsequently sold you had purchased another property you were living in.

As the dwelling was not your main residence for the entire period of your ownership, you are eligible for a partial main residence exemption on disposal of the dwelling under subdivision 118-B.

Your partial exemption applies to your 50% interest acquired on XXX to XXX. It also applies to your 50 % interest inherited on XXX to XXX.

Question 3

Is each ownership interest in the property assessed separately for the purpose of assessing your entitlement to the main residence exemption?

Detailed reasoning

As your ownership interests in the XXX property was acquired in equal shares, they were acquired under different circumstances and at different times. As seen in this ruling, there is a different provision of the tax law that applies to each interest, therefore, they need to be assessed separately.

Question 4

Does section 118-185 apply to the 50% interest in the property you acquired on XXX?

Detailed reasoning

You get an exemption from CGT in relation to a dwelling that is your main residence. This is called the main residence exemption (section 118-110 of the ITAA 1997).

Section 118-185 of the ITAA 1997 provides that you get only a partial exemption for a CGT event that happens in relation to a dwelling or your ownership interest in it if the dwelling was your main residence for only part of your ownership period and the interest did not pass to you as a beneficiary of or as trustee of a deceased estate.

If you use the dwelling for the purpose of producing assessable income, the maximum period that you can treat it as your main residence is six years at a time.

In your case you acquired a 50% ownership interest in the XXX property in XXX. You resided at the property as your main residence from the time of acquisition for several years.

You moved out of the Property and used it to earn assessable income for periods not longer than 6 years in a continuous period. Once the period you have used the property to earn assessable income is greater than six years, the absence choice is no longer effective.

In your case from the time you acquired a 50% interest in the XXX property on XXX, to the XXX, it was treated as your main residence for tax purposes. After that date it exceeded the 6 year absence period. You did not move back in and it was subsequently sold.

Therefore, section 118-185 applies to your 50% interest in the XXX property, from XXX to the XXX.

Section 118-185 of the ITAA 1997 contains the formula for calculating a partial main residence exemption for a dwelling that was your main residence for only part of your ownership period.

You calculate your capital gain or capital loss using the formula:

Capital gain or capital loss amount × Non-main residence days ÷ Days in your ownership period

Question 5

Does section 118-200 apply to the 50% interest in the property you inherited on XXX?

Detailed reasoning

Section 118-200 of the ITAA 1997 provides that you get only a partial exemption if your ownership interest in a dwelling passed to you as a beneficiary of a deceased estate or you owned it as trustee of a deceased estate.

In your case you inherited 50% interest in the XXX property as a beneficiary from your deceased parents estate therefore, section 118-200 applies to your inherited interest in that property.

Question 6

Does section 118-192 apply to either interest in the property?

Answer

Yes- in relation to the 50% interest you purchased in the property.

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