Edited version of private ruling

Authorisation Number: 1011689232476

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Ruling

Subject: Main residence

Questions and answers

Are you entitled to a full main residence exemption when you sold the property?

No.

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

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You purchased a property with the intention of it being your main residence.

The property had tenants when you purchased it.

You could not move into the property for a number of months.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118- 185

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 subsection 118-110(1)(b)

Income Tax Assessment Act 1997 subsection 118-190

Income Tax Assessment Act 1997 section 118- 185

Reasons for decision

Moving into a dwelling as soon as practicable

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA) provides that you make a capital gain or loss as a result of a CGT event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else. CGT assets include real estate acquired on or after 20 September 1985.

Main residence exemption

Generally, you can ignore a capital gain or loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence.

To get the full exemption from CGT:

The residence must be your home for the whole period that you owned it (subsection 118-110(1)(b) of the ITAA 1997).

You must not have used the dwelling to produce assessable income (unless the temporary absence rule in section 118-145 of the ITAA 1997 applies) (see section 118-190 of the ITAA 1997)

For the main residence exemption to apply for your whole ownership period, you must move into the dwelling as soon as practicable after you purchase the dwelling.

However, the Explanatory Memorandum to the Bill which became the Tax Law Improvement Act (No.1) 1998 states that the main residence exemption is not extended to the situation where you are unable to move into the dwelling because it is being rented out.

In your case, you purchased a property with an existing lease attached to it.

You received rental income from the lease.

Therefore, no exemption is available prior to you occupying the dwelling as your main residence and you will not be eligible for a full main residence exemption when you sold the property.

Partial Main residence exemption

Section 118- 185 of the ITAA 1997 states that if a dwelling is your main residence for only part of your ownership period, you will only get a partial exemption for any loss or gain arising from a CGT event that occurs in relation to that dwelling. The capital loss or gain is calculated using the following formula:

Capital gain or loss x Non main residence days*

Total days of your ownership period

(* non main residence days are the number of days where a dwelling was not occupied as your main residence).