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Edited version of private ruling
Authorisation Number: 1011666429155
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Ruling
Subject: Capital gains - main residence - moving into a dwelling
Is your house considered your main residence for you total period of ownership?
No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts and circumstances
You purchased a dwelling from family friends.
Your dwelling continued to be occupied by family friends for the first number of months of ownership as they were displaced by natural disaster.
You moved into your dwelling after your family friends vacated it.
You sold your dwelling one year later.
Relevant legislative provisions
Section 118-135 of the Income Tax Assessment Act 1997
Section 118-185 of the Income Tax Assessment Act 1997
Reasons for decision
A capital gain or loss from a dwelling is ignored for capital gains tax purposes if the dwelling was your main residence throughout the ownership period.
Section 118-135 of the Income Tax Assessment Act 1997 (ITAA 1997) extends the main residence exemption to take account of the time needed to move into a dwelling. It includes the period from when you the taxpayer acquired the main residence to when it was first practicable to move into the dwelling after it was acquired.
Essentially, if a dwelling becomes your main residence by the time it was first practicable for you to move into it after acquiring your ownership interest, the dwelling is then treated as your main residence from when the ownership interest was acquired until it actually became the taxpayer's main residence. The meaning of the expression "the time it was first practicable" should not be read down to mean the time it was first convenient.
The concession in section 118-135 of the ITAA 1997 takes account of situations where, for example, there is a delay in moving in because of illness or other reasonable cause.
In your case, the occupants whom you purchased your dwelling from, were family friends. These same family friends remained in the dwelling for a number of months from when you acquired ownership. You allowed the family friends to remain in the dwelling as a personal favour because natural disaster had displaced them from their new home. During the first number of months of your ownership, the family friends maintained household utility expenses in their name, whereas you covered expenses associated with the capital upkeep of your dwelling such as mortgage, insurance and council rates. After four months, your family friends vacated the dwelling, you then moved in after it was vacated.
The delay in moving in was a matter of choice rather than by some happening that prevented you from physically occupying the dwelling. The dwelling is therefore considered to become your main residence from the time that you moved into it rather than the time you acquired it, therefore a partial exemption from capital gains will be available under section 188-185 of the ITAA 1997.