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Edited version of your private ruling
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Subject: Capital gains tax - dwelling - main residence
Question:
Is the first element of the cost base the market value of the property when you terminated your absence choice?
Answer:
No.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts:
You purchased a dwelling (dwelling A) after 20 September 1985
You moved into the dwelling as soon as practicable.
You moved out of dwelling 'A' on after a number of years and tenant's moved into the dwelling after a short period of time.
You purchased a second dwelling (dwelling B) after a number of years.
You will continue to treat dwelling 'A' as your main residence until you moved into dwelling 'B'.
You will sell dwelling 'A' within 12 months and you will make a capital gain.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-185
Income Tax Assessment Act 1997 Section 118-192.
Reasons for decision:
You may make a capital gain when a capital gains tax (CGT) event occurs to a CGT asset. The most common CGT event is CGT event A1, which occurs when a CGT asset is disposed of. The disposal of a dwelling will be a CGT event A1.
Generally, you ignore a capital gain or loss you make on the disposal of a dwelling that was your main residence when the dwelling was your main residence for the whole of your ownership period, the dwelling is situated on less than two hectares and it has not been used to produce assessable income.
Where a dwelling is used to produce assessable income during your ownership period, you will not be entitled to a full main residence exemption. You will however, be eligible for a partial exemption from CGT when you dispose of the dwelling.
As you started using your main residence to produce income for the first time after 20 August 1996, a special rule affects the way you calculate your capital gain. In this case, you are taken to have acquired your home at its market value at the time it is first used to produce income as you meet all of the following:
· you acquired your dwelling on or after 20 September 1985
· you first used the dwelling to produce income after 20 August 1996
· when a CGT event occurs, you would only obtain a part exemption because your dwelling was used to produce assessable income during the period you owned it; and
· you would be entitled to a full exemption if the CGT event happened to your dwelling immediately before you first used it to produce income.
The capital gain is calculated using the following formula:
Capital gain amount X non-main residence days
total ownership period days
Your non-main residence days will be the total number of days from the day you ceased to claim the absence choice until settlement of the contract for sale. The total number of days in your ownership period will be the total days from the day it was first used for income purposes until settlement of your contract for sale.