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Ruling
Subject: Capital gains tax and main residence exemption
Question:
Are you entitled to claim a main residence exemption on property A for the period from early 2004?
Answer:
No.
This ruling applies for the following periods
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
You purchased property A in mid 2001. You moved into the property four months later due to renovations.
You treated property A as your main residence.
You got married and your spouse moved into property A in late 2002.
You and your spouse lived in property A until early 2004 then moved out and rented elsewhere.
Property A was rented out from early 2004 until now.
Property A is currently for sale.
Your spouse owned their own main residence (property B) in another suburb which was purchased in 1998. They lived in this property prior to your marriage.
You and your spouse chose to treat property B as your main residence from late 2002 until late 2005.
Property B was rented out until late 2005 when it was sold.
You and your spouse purchased property C in late 2005 and moved into it in late 2005 upon settlement.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 108-5
Income Tax Assessment Act 1997 subsection 118-145(1) and
Income Tax Assessment Act 1997 section 108-110.
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides you make a capital gain or capital loss as a result of a CGT event happening to a CGT asset in which you have an ownership interest.
Buildings and land are CGT assets as defined under section 108-5 of the ITAA 1997, and the disposal of a CGT asset triggers a CGT event A1 under section 104-10 of the ITAA 1997.
In general, you can disregard any capital gain or capital loss realised on the disposal of a dwelling if:
· you are an individual,
· the dwelling was your main residence for the whole period you owned it, and
· the dwelling was not used to produce assessable income
· the dwelling was situated on and adjacent to land of less than 2 hectares.
Absence choice
Once you have established your dwelling as your main residence by satisfying the above conditions and then your dwelling ceases to be your main residence, you may choose to continue to treat it as your main residence for a indefinite period if you do not use it for the purpose of producing assessable income and if you do not have another main residence. If the property became a rental property, then you are entitled to treat the dwelling as your main residence for a maximum of six years during your absence.
You will also be entitled to another maximum period of six years each time the dwelling again becomes and ceases to be your main residence.
In your situation, property A was your main residence from mid 2001 until late 2002. You chose to treat your spouse's property (property B) as your main residence from late 2002 until late2005. So property A could not have been your main residence as you can only have a main residence exemption on one property at a time. You moved out of property A in 2004 and did not re-establish this as a main residence by moving back there. Property A did not become your main residence again, therefore, you cannot treat property A as your main residence under the absence rule when it was not your main residence prior to making this choice.
Therefore, property A was not your main residence at any time after early 2004, you are not entitled to claim a main residence exemption for this period of time.