Edited version of private ruling

Authorisation Number: 1011882397998

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Ruling

Subject: Capital gains tax - main residence exemption

Issue 1

Capital gains tax (CGT) - main residence exemption

Question 1

Does section 118-135 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to treat your dwelling as your main residence from the purchase date?

No.

Question 2

Does section 118-110 of the ITAA 1997 allow a full main residence exemption on the disposal of the dwelling?

No.

Question 3

Does subsection 118-145(2) of the ITAA 1997 apply to all absences you have had from the dwelling after you initially moved in?

Yes

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

The dwelling was purchased after 19 September 1985.

You were posted overseas shortly after purchasing the dwelling.

You have never owned any other residence, nor have you claimed any other residences as a main residence in Australia.

Since purchasing the dwelling you have been seconded on various overseas assignments. Your family accompanies you on these assignments.

During these absences, the dwelling was leased to tenants for the following periods.

As part of the purchase an agreement was made that the sellers would continue to reside in the dwelling as the first tenants from the purchase date until later in the year.

You will elect to continue to treat the dwelling as your main residence during any period of absence after you first moved into it.

When you have not been seconded on overseas assignments you and your family have lived in the dwelling and it has been your main residence.

The dwelling has been disposed of.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-135
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-185

Reasons for decision

Issue 1

Question 1

Summary

You are not able to treat the dwelling as your main residence from the purchase date under Section 118-135 of the ITAA 1997.

Detailed reasoning

A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved in as soon as practicable after that time. If you purchased the dwelling, this would generally be the date of settlement of the purchase contract. However, if there is a delay in moving in because of illness or other unforseen circumstances, the exemption may still be available from the time you acquired your ownership interest in the dwelling.

If you could not move in because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest.

In your case, as part of the purchase agreement, it was agreed that the sellers of the dwelling would continue to reside in the dwelling until December 1988. As a result you are considered not to have moved into the dwelling as soon as practicable after you acquired your ownership interest and section 118-135 of the ITAA 1997 will not apply to treat the dwelling as your main residence from the day you acquired the interest in the dwelling.

A partial exemption will apply from the date the dwelling you first started residing in the dwelling as your main residence.

Question 2

Summary

You are not entitled to a full main residence exemption on the disposal of the dwelling.

Detailed reasoning

Generally, if you are an individual you can ignore a capital gain or capital 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 dwelling must have been your home for the whole period you owned it.

· you must not have used the dwelling to produce assessable income, and

· any land on which the dwelling is situated must be two hectares or less.

If you are not fully exempt, you may be partially exempt if;

· the dwelling was your main residence during only part of the period you owned it

· you used the dwelling to produce assessable income or

· the land on which the dwelling is situated is more than 2 hectares.

In your case, the dwelling was your main residence during only part of the period you owned it which was from the date the dwelling first became your main residence. As a result you will have a partial exemption from CGT from a CGT event happening to your ownership interest in the dwelling.

The partial exemption will apply from the date you first started residing in the dwelling as your main residence.

Question 3

Subsection 118-145(2) of the ITAA 1997 applies to all of the absences you have had from your dwelling after you first moved in.

Summary

In some cases, you can choose to continue to treat a dwelling as your main residence even though you no longer live in it. However you cannot make this choice for a period before a dwelling first becomes your main residence. The choice needs to be made only for the income year that the CGT event happens to the dwelling.

If you use the dwelling to produce income, you can choose to continue to treat it as your main residence for up to six years after you stop living in it. If you are absent more than once during the period you own the home, the six-year maximum period you can treat it as your main residence while you use it to produce income is applied separately to each period of absence.

In your case as the dwelling was your main residence for only part of your ownership period, you can only choose to treat the dwelling during absences as your main residence from the time it first became your main residence.