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Ruling
Subject: CGT - Main residence
Question
Is the capital gain you made on the disposal of the dwelling disregarded?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You and your spouse jointly acquired the dwelling some time after 20 September 1985.
You rented out the dwelling for a period during your ownership.
You did not live in the dwelling before it was rented out.
The dwelling was your main residence from the time you resided in it.
You sold the dwelling and made a capital gain.
You believe you would have incurred a capital loss for the period the dwelling was rented.
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 118-185
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.
For the main residence exemption to apply for your whole ownership period, you must move into the dwelling as soon as practicable after you purchase the dwelling.
As soon as practicable refers to the period from when you acquired the dwelling to when it was first practicable to move into the dwelling after it was acquired. This is to take account of situations where, for example, there is a delay in moving because of illness or other reasonable causes beyond your control.
The factors against concluding that you moved in to the dwelling as soon as practicable after purchasing it include:
· the length of time between the date you acquired the property and the date you first occupied it; and
· the use you put it to during this period (earning rental income).
In your case, you decided to relocate overseas and purchased the dwelling while maintaining residence overseas. You did not move into the dwelling until your return to Australia. It was a voluntary decision on your part to relocate overseas and rent out the property after settlement until your return to Australia. This is not a situation beyond your control.
Your contention that you could not move in until your overseas property was sold is not sufficient to consider that you occupied the dwelling when it was first practicable to do so.
The fact you rented out the dwelling while you were overseas for a significant period of time, further supports the fact that you did not establish the dwelling as your main residence when it was first practicable to do so. Therefore, you can not claim the main residence exemption for the entire ownership period.
If a dwelling was your main residence for only part of your ownership period, you will only get a partial exemption for a CGT event that occurs in relation to the dwelling. The capital gain or loss is calculated using the following formula:
Capital gain or loss amount X non-main residence days
total ownership period days
In your case, you will be entitled to a partial main residence exemption. Your non-main residence days will be the total number of days that you were not residing in the dwelling. The total number of days in your ownership period will be the total days from the date of purchase until the date the dwelling was sold.
The partial exemption rules prescribe that your capital gain is calculated based on your total ownership period. The legislation does not operate to allow any discretion in regard to choosing other periods to apply the exemption.
As you have jointly owned the dwelling for more than 12 months and satisfy all other requirements, you can apply the CGT discount to reduce the capital gain by half. You are required to include your share of the capital gain in your assessable income for the 2011 income year.