Edited version of your private ruling

Authorisation Number: 1012283056422

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Ruling

Subject: Capital gains tax - main residence - moved in as soon as practicable

Question1:

Did you move into the property as soon as practicable?

Answer:

No.

Question 2:

Does the first use to produce income rule apply to your property which was rented out in mid 1998?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were working and residing overseas for two decades and you requested to return to Australia to spend more time with your ageing parents.

Whilst overseas you purchased several properties, but none of these properties were suitable for you and your spouse to reside in as your main residence for a number of reasons upon your return to Australia.

In 1991 you and your spouse returned to Australia and purchased a property (the property).

The property was tenanted and you were quite content to keep this tenant after your purchase as their fixed term lease had expired and was subject to a specified number of days notice to vacate.

It was your intention to seek employment in a capital city upon your return to Australia.

You verbally notified your employer, company A of your intention to give your required specified number of months notice to resign in the latter part of 199X.

Your position in this company was a senior position and you had full responsibility for all of a specified agreement matters and related dealings with the overseas government.

Under the leadership of a new leader, the overseas country underwent a dramatic democratic transformation.

As a result of this the executive committee of the board of your employer insisted that you not resign and return to Australia because of your expertise on the specified agreement matters.

You deferred your plans to return to Australia.

When the overseas government eventually presented your company with the new agreement, it was duly signed and you were able to tender your resignation to your employer. Your resignation was accepted and you packed up your household and returned to Australia.

You moved into the property in 199Y and it was your main residence until 199Z.

During this time you carried out major improvements to the property.

The property was rented out from mid 199Z.

You and spouse have brought a rural property.

You intend to retain the property for another a specified number of years just in case you and your spouse decide to return to the city.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-192

Income Tax Assessment Act 1997 Section 118-135

Income Tax Assessment Act 1997 Section 118-185

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Moving into the dwelling

A dwelling is considered to be your main residence from the time you acquire your ownership interest in it if you moved into it 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 because of illness or other unforseen circumstances the exemption may still be available from the time you acquired your ownership interest in the dwelling. 

The term as soon as practicable is used to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the property became your main residence on the date you acquired it (that is you would have to physically move in on that day.) 

Chapter 2.12 of the Explanatory Memorandum for Tax Law Improvement Act (No 1) 1998 advises that:

· The rewritten provision takes account of situations where, for example, there is a delay in moving in because of illness or another reasonable cause. 

The Explanatory Memorandum indicates that it is intended to apply in situations where moving into the home is temporarily delayed due to matters outside the persons control and, during the delay, they do not take up residence elsewhere for any substantial period.  Taxation Determination TD 92/147 supports this approach. 

The Courts have determined that 'as soon as practicable' means 'as soon as reasonably practicable', which is a lesser requirement than 'as soon as possible' (Andrews CJ in Wills v Whiteside, ex parte Wills (1987) 2 Qd R 284 at 288) but means more than 'as soon as practicable for your convenience' (Anglo-American Oil Co Ltd v Port of London Authority [1914] 1 KB 14 at 24). 

There are a number of factors against concluding that you and your spouse moved in to the property as soon as practicable:

· at the time of purchase you and your spouse did not intend to move into the property until the end of 199X.

· the length of time between the date you acquired it and the date you first occupied it. We consider that the length of time, from 199X until sometime in 199Y when you and your spouse first occupied the property to be quite a considerable length of time.

· at the time of purchase the property which was tenanted and was available for rent until you moved into it, and

· in 199X you made the decision to continue your employment in the overseas country and to defer your plans to return to Australia.

· There were no legal or physical impediments to your occupation of the property even taking into account the above.  

Therefore, you did not move in as soon as practicable so you will not be entitled to extend the main residence exemption for the period before you moved in. Your main residence exemption will commence on the date you moved into the property in 199Y.  

Home first used to produce income

A special rule applies if you first use your dwelling to produce assessable income any time after 7.30pm (ACT time) on 20 August 1996, if:

· only a partial main residence exemption would be available because the dwelling was used for the purpose of producing assessable income during your ownership period

· the income producing use started after 7:30pm (by legal time in the ACT) on

20 August 1996, and

· you would have been entitled to a full main residence exemption if you had entered into a contract to dispose of the dwelling just before the first time it was used for the income producing purpose.

If these conditions are satisfied, you are taken to have acquired the property at the time you first started using it for income producing purposes, for its market value at that time.

 As you did not move into the property as soon as practicable, you do not meet the third condition and this special rule cannot apply. 

Please note that you will not be required to pay CGT until such time as you dispose of the property.