Edited version of private ruling

Authorisation Number: 1011879873898

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Ruling

Subject: Main residence exemption

Can you claim the main residence exemption under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of your property?

Answer

Yes.

This ruling applies for the following period

30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You purchased the property with your former spouse.

You both lived in the property as your main residence.

For a period of less than six years you rented the property. Both you and your former spouse lived with your parents during this period and did not have another main residence. During this period you and your spouse divorced and as a result of a court order, you acquired your former spouse's share of the property.

After a period of less than six years you moved back into the property. After a period of time, you decided to rent the property again. During this period you did not have another main residence.

A few years later you sold the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-178

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

The legislative references referred to herein are from the ITAA 1997, unless otherwise stated.

CGT is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event.

The most common event is CGT event A1. CGT event A1 happens when you dispose of an asset to someone else. You are deemed to have disposed of an asset if a change in ownership occurs from you to another entity.

In your case, you acquired a property jointly with your former spouse and then your former spouse's share in the property was transferred to you. You later sold the property.

Marriage breakdown rollover

Subdivision 126A deals with marriage or relationship breakdowns. As a general rule, CGT applies to all changes of ownership of CGT assets occurring on or after 20 September 1985. However, if an asset is transferred to you as a result of a marriage breakdown, there are automatic CGT rollover provisions in certain cases. If these rollover provisions apply, the spouse transferring (transferor spouse) the asset disregards any capital gain or capital loss they make on the transfer. The spouse to whom the asset is transferred (the transferee spouse) makes the capital gain or capital loss when they eventually dispose of the asset. The cost base and other attributes of the asset are transferred to you.

Under section 126-5 a marriage breakdown rollover can apply where you acquired your former spouses interest in the property under a court order made by consent under the Family Law Act 1975 (FLA 1975) or a similar law of a foreign country.

In your situation, you have indicated that you acquired your former spouse's share of the property as a result of a court order under a state, territory or foreign law relating to marriage breakdowns. This means that you will calculate your cost base of the property in accordance with the full purchase price (including your former spouse's share).

Main residence

A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if:

· you are an individual

· the dwelling was your main residence throughout your ownership period

· (section 118-110)

· the property was not used to produce assessable income, and

· any land on which the dwelling is situated is not more than two hectares.

(section 118-120)

Continuing main residence status after dwelling ceases to be your main residence

In some cases, you can choose to have a dwelling treated as your main residence even though you no longer live in it (subsection 118-145(1)). You can only make this choice for a dwelling that you have first occupied as your main residence.

Where a dwelling is used to produce income, you can choose to treat the dwelling as your main residence for up to six years after you cease living in it. If you move back to the dwelling and treat it as you main residence, the six year rule will begin again once you move out (subsection 118-145(2)).

If you make this choice, you cannot treat any other property as your main residence for that period (subsection 118-145(4)).

Rollover provisions and main residence

Under the main residence provisions, subsection 118-178(2) states:

(a) your ownership interest had commenced when your former partner's ownership interest commenced (the acquisition time); and

(b) from the acquisition time until the time your former partner's ownership interest ended:

i. you had used the dwelling in the same way that your former partner used it; and

ii. the dwelling had been your main residence for the same number of days as it was your former partner's main residence.

You and your former spouse lived in the property from the date of purchase. You both then lived with your parents while you rented the property. In accordance with a court order the property was then transferred to you and you continued to rent the property for a period of less than six years.

You moved back into the property for a period of time, before renting the property again prior to sale.

You and your former spouse have claimed the property as your main residence during the entire periods of your respective ownerships.

As you moved into the property after purchase and lived there for a period of time before renting the property for periods of not more than six years, after which you returned to the property and used the property as your main residence. You may claim the main residence exemption under section 118-110 upon the sale of your property.