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Ruling
Subject: Capital gains tax - disposal of property
Question
Will you be entitled to disregard any capital gain or capital loss you make when you dispose of your property?
Answer: Yes.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You purchased a residential dwelling (the property) in 2002.
You moved into the property as soon as practicable after settlement for the purchase was effected.
You lived elsewhere for some months in 2004 while maintenance work was undertaken on the dwelling. The dwelling remained vacant during this period.
You moved out of the property in mid 2006 and have lived elsewhere since that time.
Tenants have occupied the property from mid 2006 to the present.
The property is currently on the market.
The current tenants will vacate the property prior to the middle of 2012 and it will remain vacant until it is sold.
The land on which the dwelling is built is less than two hectares in size.
You are choosing to treat the property as your main residence during your absence.
You have a spouse who is choosing to treat the property as his main residence for the same period.
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 118-120.
Income Tax Assessment Act 1997 Section 118-125.
Income Tax Assessment Act 1997 Section 118-145.
Reasons for decision
The most common type of capital gains tax (CGT) event is CGT event A1 which happens when you dispose of a CGT asset to someone else. The disposal of a property is a CGT A1 event.
A building or structure on land that you acquired before 20 September 1985 will be exempt from CGT as it is a pre-CGT asset. If you acquired the building or structure on land after 20 September 1985, CGT may be applicable.
In your situation, you acquired the property after 20 September 1985 and when you dispose of the property it will trigger a CGT A1 event.
If you are an individual (not a company or trust) you can disregard a capital gain or capital loss you make from a CGT event that happens to a dwelling that qualifies as your 'main residence' as long as:
· the dwelling was your main residence for the whole period you owned it;
· your interest in the dwelling did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person; and
· the size of the land on which the dwelling is built is no larger than two hectares.
Once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence despite an absence from the dwelling. This only applies where no other dwelling is treated as your main residence during the period of absence.
Where the dwelling is not used to produce assessable income you may continue to treat the dwelling as your main residence for an indefinite period of time during your absence. However, where the dwelling is used to produce assessable income the period of time you may treat it as your main residence is limited to a maximum of six years. The six year period commences when the dwelling is first used to produce assessable income and ends when the dwelling ceases to be used to derive income.
In your situation, you purchased the property in 2002 and occupied it after settlement for the purchase had been completed. The property was your main residence for over four years before you decided to live elsewhere and use the property to produce assessable rental income. The property was first used to produce rental income in mid 2006 and will cease to produce income prior to the middle of 2012. This is a period of time that is no longer than six years. You and your spouse have chosen to treat the property as your main residence during your period of absence.
Based on the facts, you are entitled to disregard any capital gain or capital loss you make when you dispose of your property.