Edited version of private ruling

Authorisation Number: 1011808549932

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Ruling

Subject CGT - property being for sale at the same time it is available for rent

Question

Did you make a capital loss on the sale of your old dwelling?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

30 June 2010

Relevant facts and circumstances

You and your spouse settled on a contract for a new residence and you moved in shortly after.

You and your spouse put your old residence up for sale, which you were living in at the time. Despite open inspections and advertising no offers were made. With settlement on your new residence the old residence was made available for rent with the intention to rent or sell, depending on which came first. The appointed managing agent was unsuccessful in finding a tenant even though the rent was below market value and there were several open inspections.

An offer was made to buy the old residence and the contract signed. This was the only offer made during the months it was on the property market. The offer was about $XX,000 below the market value performed by registered valuers on a certain date. Settlement of the old home occurred within six months of you moving into the new home.

Reasons for decision

Summary

You did not make a capital loss on the sale of your old dwelling

Detailed reasoning

When a previous main residence is first used to produce income the cost base becomes the market value at this time under section 118-192 of the Income Tax Assessment Act 1997 (ITAA 1997). This rule applies if:

· only a partial main residence exemption would be available under subdivision 118-B because the dwelling was used for the purpose of producing assessable income during the taxpayer's ownership period: paragraph 118-192(1)(a)


· the income producing use started after 7.30 pm (by legal time in the ACT) on 20 August 1996: paragraph 118-192(1)(aa), and


· the taxpayer would have been entitled to a full main residence exemption if they had entered into a contract to dispose of the dwelling just before the first time it was used for the income producing purpose: paragraph 118-192(1)(b).

In your case section 118-192 of the ITAA 1997 does not apply because you never used your former residence to produce assessable income. Therefore you cannot work out your capital gain or capital loss using market value as the cost base.

Section 118-140 of the ITAA 1997 does however allow for a dual main residence exemption when moving from one main residence to another for a period of up to six months. Your former residence is therefore considered to still be your main residence for the relevant period because this section applies to your situation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 118-135

Income Tax Assessment Act 1997 Section 118-140

Income Tax Assessment Act 1997 Subsection 118-192