Edited version of private advice

Authorisation Number: 1052342689021

Date of advice: 13 December 2024

Ruling

Subject: CGT - main residence exemption

Question 1

Can you claim the main residence exemption for Property 1?

Answer

Yes.

Question 2

Can you claim the main residence exemption for Property 2?

Answer

No.

Can Property 1 and Property 2 be taken to have been used together as one place of residence?

Taxation Determination TD 1999/69 Income tax: capital gains: can the term 'dwelling' as defined in section 118-115 of the Income Tax Assessment Act 1997 include more than one unit of accommodation? (TD 1999/69) confirms that the term 'dwelling' as defined in section 118-115 of the ITAA 1997 can include more than one unit of accommodation where the units of accommodation are used together as one place of residence or abode.

Whether two or more units of accommodation are used together as one place of residence or abode for the purposes of the definition of 'dwelling' is a question of fact that depends on the circumstances of each case.

In your case, during your period you owned both properties at the same time (Property 1 and Property 2), one of these properties was always rented out for income producing purposes. As such, Property 1 and Property 2 cannot be taken to have been used together as one place of residence or abode.

Application to your circumstances

You can only claim the main residence exemption for one property at a time under section 118-145 of the ITAA 1997.

Therefore, you will not be able to claim a main residence exemption for Property 2, given that you have chosen to use the absence rule in section 118-145 of the ITAA 1997to continue to treat Property 1 as your main residence from when you moved out in late 20XX until when settlement is scheduled to occur in early 20XX. Property 2 is also a separate dwelling for the purposes of capital gains tax.

However, you have met the relevant conditions to claim a main residence exemption for Property 1.

This ruling applies for the following period:

Year ending 30 June 2025

The scheme commenced on:

1 July 2024

Relevant facts and circumstances

You purchased Property 1 in mid 20XX (over 10 years ago), and you lived in that property immediately after it was purchased.

A few years later, in late 20XX, a granny flat (Property 2) was built in the backyard of Property 1. However following Property 2 being built, you continued to still live in Property 1.

Property 2 was rented out to tenants from early 20XX to late 20XX.

Property 1 and Property 2 are on a single parcel of land.

In late 20XX, you moved into Property 2, and Property 1 was rented out to tenants from late 20XX to present.

Since purchasing property 1 in mid 20XX, you have not owned any other property, apart from Property 2, along with a brief period between the settlement of Property 1 and the finalisation of your previous Australian home a short time after you purchased Property 1.

Property 1 and Property 2 are now under a contract for sale, with settlement scheduled for early 20XX.

You have chosen to use the absence rule in section 118-145 of the ITAA 1997 to continue to treat Property 1 as your main residence from when you moved out in late 20XX until when settlement is scheduled to occur.

At all relevant times above, you have been a resident of Australia for tax purposes.

Assumption

Settlement for Property 1 and Property 2 will take place during the 20XX-XX income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-115

Income Tax Assessment Act 1997 Section 118-145

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