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Edited version of private ruling
Authorisation Number: 1011686082192
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Ruling
Subject: Capital gains tax and the main residence exemption
Questions:
1. For capital gains tax purposes, are you entitled to a full main residence exemption when you sell Property A?
Answer: No.
2. For capital gains tax purposes, are you entitled to a partial main residence exemption when you sell Property A?
Answer: Yes.
This ruling applies for the following periods:
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You purchased Property A in 2001. It remained vacant and was then rented out.
The house on Property A was then demolished and you built a new house on the land.
You moved into the house in 2003. You have lived in the property ever since.
You purchased Property B a number of years before purchasing Property A. You lived in Property B as your main residence until the new house at Property A was completed. You elected to treat Property B as your main residence for the period when you were not living in it.
From the time you moved into Property A until you sold Property B, you owned both of these properties.
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 118-110.
Income Tax Assessment Act 1997 Section 118-145.
Reasons for decision
According to section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997), a taxpayer makes a capital gain or capital loss only when a capital gains tax (CGT) event happens.
The most common CGT event that happens to real estate is its sale or disposal, which is CGT event A1 (section 104-10 of the ITAA 1997).
Generally, an individual taxpayer can ignore a capital gain or capital loss from a CGT event that happens to his or her ownership interest in a dwelling that is his or her main residence (section 118-110 of the ITAA 1997).
To get the full exemption from CGT:
· the dwelling must have been the taxpayer's home for the whole period of ownership
· the dwelling must not have been used to produce assessable income, and
· any land on which the dwelling is situated must be 2 hectares or less.
A taxpayer who does not meet all of the above criteria may still be entitled to a partial exemption if he or she meets all of the above criteria for only part of the ownership period.
You may, however, choose to continue to treat a dwelling as your main residence when you cease to live in that dwelling, provided certain conditions are met. If you make this choice, you cannot treat any other dwelling as your main residence during the period you own the dwelling (section 118-145 of the ITAA 1997).
Application to your circumstances
In your case you elected to treat Property B as your main residence for the entire period you owned it. This means that during the time you owned Property B you cannot treat any other property, including Property A, as your main residence.
For a period of time you owned both Property A and Property B. During this time you elected to treat Property B as your main residence. Therefore, for this period you are not entitled to any main residence exemption.
However, from the date you sold Property B, you are entitled to claim the main residence exemption for Property A, as during this time you lived and continue to live in the property as your main residence, and have not treated any other property as your main residence.
Therefore, when you sell Property A, you are entitled to a main residence exemption for CGT purposes for the period from the date when you sold Property B onwards.
Calculating the capital gain
Where a person makes a capital gain from the sale of a property and is entitled to a partial main residence exemption, this is calculated after calculating the capital gain.
The part of the capital gain that is taxable is calculated as follows:
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number of days in your ownership period |
total number of days in your ownership period |