Edited version of private ruling

Authorisation Number: 1011602862527

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Ruling

Subject: Main Residence Exemption

Are you entitled to claim the main residence exemption?

Yes.

This ruling applies for the following period:

1 July 2009 to 30 June 2010

The scheme commenced on:

1 July 2009

Relevant facts

You purchased a property.

You occupied the property for two years.

For six years person A lived in the property and it was not utilised for any income producing activity.

You began to rent the property.

After five years you sold the property.

During your absence from the property you did not treat any other property as your main residence.

Relevant legislative provisions

Section 118-110 Income Tax Assessment Act 1997

Section 118-145 Income Tax Assessment Act 1997

Reasons for decision

Are you entitled to claim the main residence exemption?

The main residence exemption provisions in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) disregard any capital gain or capital loss that a taxpayer makes on the disposal of a dwelling where certain conditions are met.

Section 118-110 of the ITAA 1997 provides that a capital gain or capital loss will be disregarded if:

· the dwelling was owned by an individual, and

· the dwelling was the individual's main residence throughout the ownership period.

Section 118-145 of the ITAA 1997 allows an individual to continue to treat the dwelling as their main residence, even if it ceases to be their main residence, in certain circumstances. Where the dwelling is not used to produce assessable income the individual can continue to treat it as their main residence indefinitely. While the dwelling is used to produce assessable income, for instance where it is rented out, the dwelling can continue to be treated as the individual's main residence for up to six years. This is known as the six year absence rule. The main residence exemption cannot be claimed on any other dwelling during this period.

The first period

In your case, you are an individual and you purchased your property and lived in it for a number of years. For the following x years person A continued to live in the property and it was not used to produce assessable income. You did not claim any other home as your main residence during this period. As you did not:

· use the property to produce assessable income while person A lived in it, and

· you did not claim the main residence exemption on any other property during this period,

you are entitled to continue treating it as your main residence for this period.

The second period

After the six year period in which person A lived in the property rent free, you rented the property out and it began to produce assessable income. After a period of less than six years you then sold the property. You did not claim the main residence exemption on any other dwelling during this period. As this period is less than six years you are entitled to continue treating the property as your main residence throughout this period.

Summary

In conclusion, you are entitled to continue treating your property as your main residence during the second period pursuant to section 118-145 of the ITAA 1997. As such, any capital gain or capital loss you make on the home will be disregarded.