Edited version of private ruling

Authorisation Number: 1011605924851

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Subject: Capital gains tax (CGT) - main residence exemption - property used to produce income

Is the capital gain made on the disposal of the property disregarded?

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You purchased a property, Property A, after 20 September 1985 and this property has been rented out from the date it was acquired until the present time.

After you acquired Property A, you lived at an associate's house for a number or years, and then in a rental property for a further number of years.

A number of years after Property A was purchased, you took out a mortgage on Property A to finance the purchase another property (Property B), which became your main residence.

You disposed of Property B a number of years later and made a capital loss.

You have signed a contract of sale for the disposal of Property A.

You have made a capital gain on the disposal of Property A.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 115-5

Income Tax Assessment Act 1997 Section 115-10

Income Tax Assessment Act 1997 Section 115-15

Income Tax Assessment Act 1997 Section 115-25

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 capital loss when a CGT event happens to a CGT asset. The most common event is CGT event A1 which occurs when you dispose of your ownership interest in a CGT asset to another person. A CGT event A1 occurred when you disposed of your property.

In certain circumstances, there may be an exemption that can apply which means that the capital gain or capital loss created by a CGT event is disregarded. 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

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

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

If a dwelling was not your main residence for the whole time you owned it, there are other exemptions that may entitle you to a full exemption, or to extend a partial main residence exemption you would otherwise get. However, in order to be eligible for these exemptions, the dwelling must be your main residence for at least part of your ownership interest.

In this case, you purchased a property, Property A, after 20 September 1985 and have rented it out from the time of acquisition until the present time. You have entered into a sale of contract for the disposal of Property A. You have never resided at Property A during any part of your ownership period. As you have never occupied Property A as your main residence, you will not be entitled to either a full or partial main residence exemption in relation to Property A.  

While we acknowledge and accept your circumstances, there is no legislation which would enable the Commissioner to allow you to disregard the capital gain that you have made on the disposal of your property. Therefore, the capital gain that you make on the disposal of Property A must be included in your income tax return in the income year in which Property A is disposed of.

Where a CGT event A1 occurs, a discount is available on the capital gain made on the disposal of a CGT asset where the following conditions are met: 

· the capital gain is made by an individual

· the CGT event occurred after 11:45am on 21 September 1999

· the cost base has not been indexed, and

· the asset must have been acquired at least 12 months before the CGT event.

If you meet all of the conditions listed above, you will be able to apply the 50% discount to the capital gain made on the disposal of Property A.