Edited version of private ruling

Authorisation Number: 1011724461619

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Ruling

Subject: Capital gains tax and the main residence exemption

Question and answer

Is any capital gain or capital loss made on the sale of your City A property disregarded due to the application of the main residence exemption?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You signed a contract to sell your property in City B.

Over a period of time you disposed of the majority of your furnishings and possessions as you intended moving back to your hometown of City A after living in City B for several years.

A short time later you settled the contract on the City B property. After this time you did not own any property. You moved into share accommodation at a friend's flat in City B until such time as you would be able to secure a work transfer to City A and find a place to live there.

Over a period of time you travelled to City A on a number of occasions to inspect potentially suitable properties to purchase.

Some time later you were given approval to relocate, at least temporarily, to City A in order to gain work experience on a project.

Shortly afterwards you signed a contract to purchase a property in City A. The size of the property was less than two hectares.

You settled the contract and immediately moved into the City A property. You did not own any other property at this time.

A short time later the work project in City A was suspended due to unforseen circumstances. Accordingly you had to return to City B, where your substantive position was located, until you were able to secure a permanent work transfer.

You moved out of the City A property and rented it out for a period of time that was less than six years.

You moved back into your friend's City B flat and returned to your permanent work position in City B.

Some time later you signed a contract to purchase a property in City B.

You settled the contract on the City B property. You remained in your friend's flat and did not move into the City B property immediately after settlement. You moved into the City B property a number of months after the settlement. During this time you carried out some minor renovations as it was your initial intention to treat it as a rental property.

A number of months later you moved into the City B property.

Some time later you obtained approval to relocate permanently to City A with your work.

You served a 60 day "Notice to vacate" on the tenants in the City A property. Upon being served the notice, the tenant took you to the relevant authority on a number of different occasions for alleged breach of contract. After a particular hearing, you agreed to let the tenant and their family remain in the City A property until one of the children completed their education at a nearby school. The tenant's unwillingness to vacate the property delayed your return to City A by a number of months.

Some time later the tenant vacated the City A property.

Shortly afterwards you moved out of the City B property and began renting it out.

You moved back into the City A property and remained there for a period of time.

Some time later the tenant vacated the City B property.

Around the same time you signed a contract to sell the City A property. Due to considerably changed personal and financial circumstances that occurred, you decided to sell the City A property, thereby reducing your debts and move back to City B. You settled the contract for the sale of the City A property shortly afterwards.

You moved back into the City B property.

You will make the choice to continue to treat the City A property as your main residence after you moved out of it and commenced renting it out.

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

Generally, you disregard any capital gain or capital loss that you make on the sale of a dwelling that was your main residence for your entire ownership period.

In some cases, you can choose to continue to treat a dwelling as your main residence even though you no longer live in it. You can only make this choice for a dwelling that you have first occupied as your main residence.

Where you use the dwelling to produce income, for example you rent it out, you can choose to treat it as your main residence while you use it for that purpose for a period of up to six years after you stop living in it.

In your situation, you moved into the City A property as soon as practicable after the contract settled. While you only resided in the City A property for a short period of time when you initially moved into the property, you did establish it as your main residence. You have chosen to continue to treat the dwelling as your main residence after you moved out of it and commenced renting it out. You have rented the dwelling for a total period that is less than the six year period allowed.

Accordingly, you are entitled to a main residence exemption in respect of the City A property and any capital gain or capital loss that you made on its sale is disregarded.