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Edited version of private ruling
Authorisation Number: 1011848017599
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Ruling
Subject: Capital gains tax - main residence and spouse with different main residence
Question 1: Can you treat your spouse's dwelling as your main residence without ever residing in the dwelling?
Answer: Yes.
Question 2: Are you entitled to a partial main residence exemption upon disposal of your main residence?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
In late 1999 you acquired a property (property B).
The dwelling attached to land is less than two hectares and has been used for private and domestic purposes.
You moved as soon as practicable and established it as your main residence.
In late 2009 you entered into a spousal relationship with person A.
Person A moved into property B.
At the time of entering into this spousal relationship person A owned a property (property A) which they had established as their main residence.
Property A was purchased by person A in late 2004.
The dwelling attached to land (property A) is less than two hectares and has been used for private and domestic purposes.
Property A was used to produce assessable income during the period late 2009 to late 2010.
Person A has chosen to continue to treat property A as their main residence during any period of absence.
You have chosen property A to be your main residence for the period from late 2009 until its disposal.
In late 2010, you signed a contract for the disposal property B.
In late 2010, person A signed a contract for the disposal of property A.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-185
Income Tax Assessment Act 1997 Section 118-170
Reasons for decision
Main Residence Exemption
Generally you ignore a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence for the entire period you owned it.
For the purposes of the main residence exemption, you have an ownership interest in a dwelling or land you acquire under a contract from the time you get legal ownership (unless you have a right to occupy it at an earlier time).
You have legal ownership of a dwelling or land from the date of settlement of the contract of purchase (or if you have a right to occupy it at an earlier time, that time) until the date of settlement of the contract of sale.
If a dwelling is not your main residence for the whole of your ownership period, you are entitled to a partial main residence exemption.
You calculate the part of the capital gain that is taxable by using the following formula:
Total capital gain made number of days in your ownership period
from the CGT event X when the dwelling was not your main residence
Total number of days in your ownership period
Spouse having different main residence
If, during a period a dwelling is your main residence and another dwelling is the main residence of your spouse (except a spouse living permanently separately and apart from you), you and your spouse must either:
· choose one of the dwelling as the main residence of both of you for the period, or
· nominate the different dwellings as your main residences for that period.
There is nothing to prevent either spouse from nominating the other's dwelling as their main residence even though they do not have an ownership interest in that dwelling.
How this applies to your circumstances
In your case, property B was not your main residence for your entire ownership period. You established property B as your main residence from as soon as practicable after acquisition and it continued to be your main residence until the date in late 2009 when you and person A entered into a spousal arrangement. It was at this time you nominated property A as your main residence.
Therefore, as property B has not been your main residence for your entire ownership period, you are entitled to a partial main residence exemption. You will need to use the above formula to calculate your capital gain or capital loss.
The number of days in your ownership period when property B was not your main residence will be from the date in late 2009 you entered into your spousal arrangement with person A until settlement date.
The total number of days in your ownership period is from settlement date to settlement date.
You can use the discount method to calculate your capital gain as the necessary criteria have been met. The discount percentage is 50% for individuals.
Enclosed is information on how to calculate your capital gain or capital loss and the costs that can be included in the cost base, this information has been taken from the Guide to capital gains tax 2009-10 (NAT 4151-6.2010. . Further information is also available on our website www.ato.gov.au.