Edited version of private advice

Authorisation Number: 1052518063059

Date of advice: 18 March 2026

Ruling

Subject: CGT - main residence exemption

Question 1

Are you entitled to a full main residence on the property?

Answer

No.

Question 2

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

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your spouse signed the contract to purchase a home whilst on a family holiday.

You and your spouse took out home insurance on the property.

You and your spouse paid the deposit on the property.

Settlement for the property took place a few weeks after singing the contract.

You and your spouse rented out the property and signed a rental agreement shortly after settlement.

You signed an employment contract a few weeks after settlement.

Your spouse and children remained living in State Z.

The State X government closed the state border to State Z due to COVID restrictions.

You entered hotel quarantine in State X.

You left hotel quarantine and stayed with a friend.

You began work with your new employer in State X.

The State X government announces that the state border will open to State Z.

You received an email confirming you have changed to a State X driver's licence.

You paid the deposit to the removalist for interstate move of your furniture.

You took out an internet contract for the State X property.

You changed your name on the Electoral Roll to reflect your new address.

You return to XX to help pack up the unit in State Z and prepare for the move to State X.

You connect the electricity to the property.

The removalists picked up your furniture and transported it to State X.

You and your spouse along with your children travel to State X when the border opens.

You all stay with friends for a night before moving into the State X property.

The lease ended for the tenant at the State X property.

You and your family move into the property without furniture.

Your furniture was delivered to the property.

Your children were enrolled in a State School.

You and your spouse stop living in the property and you both return to XX to live separately.

The State X property was leased to a third party.

The State X property is leased to a second third party.

You and your spouse signed a contract to sell the State X property.

The second third party vacates the State X property.

The State X property was sold via private sale.

The sale of the State X property is settled a couple of months after signing the contract.

You and your spouse elect to treat the State X property as your main residence under Section 118-145 of the ITA 1997 for the relevant period.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-185

Reasons for decision

You make a capital gain or loss because of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss.

You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it.

You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it.

Capital gains tax is not a separate tax; it forms part of your assessable income and is taxed at your marginal tax rate.

CGT main residence

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

As the property was not your main residence for the whole of your ownership period you cannot have a full main residence exemption on the property.

You did not move into the property when it settled.

You and your spouse rented the property as you and your family were not ready to move from State Z to State X until you had secured new employment in State X.

The property was rented for several months.

You and your family move into the property and commence treating it as your main residence.

Your furniture is moved into the property several months after you purchased the property.

The question remains as to whether you established the property as your main residence for the period you were staying there.

Whether a dwelling is your main residence depends on the actions of you and your family. Generally, a dwelling is your main residence if:

•                 You and your family live in it

•                 Your personal belongings are in it

•                 It is the address your mail is delivered to

•                 It is your address on the electoral roll

•                 Services such as gas and power are connected.

The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant.

In this sense, your intentions can help to explain your actions or affect the weighting given to certain actions over others. However, your intentions are not a substitute for your actions.

In Couch & Anor v Federal Commissioner of Taxation [2009] AATA 41 at paragraph 14, the Tribunal confirmed that the 'mere intention to occupy a dwelling as a sole or principal residence, but without doing so, is insufficient to obtain the exemption.'

Where a full exemption is not available, you may be entitled to a partial exemption under section 118-185 of the ITAA 1997. You calculate your capital gain or capital loss as follows:

Capital gain or capital loss amount x Total days non-main residence days / total number of days you are entitled to a partial main residence exemption

It is accepted that you and your family moved into the property and commenced treating it as your main residence until you moved out of the property and returned to State Z.

You make the election to treat the property as your main residence for the relevant period until it was sold under the Absence rule under Section 118-145 of the ITA 1997.

You and your spouse were treating no other property as your main residence for this period.

You are entitled to a partial main residence on the sale of the property.

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