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Ruling
Subject: CGT Main residence exemption
Question 1
Can you treat your entire property as your main residence after you move out?
Answer
No
Question 2
Can you continue to treat to portion of your property that was not used to produce your business income as your main residence after you move out?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
You purchased a property. You have lived in and operated your home based business from the property since the purchase date.
You use approximately X% of the premises for residential purposes and the remaining X% as your home office.
You intend to purchase a new property to live in, but you intend to continue to treat your old property as your main residence for CGT purposes for up to 6 years.
You intend to rent out the residential portion of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-145
Reasons for decision
Section 118-110 of the ITAA 1997 states that you can disregard any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period.
Where you use part of your residence to produce income, you will only be entitled to a partial exemption.
If a dwelling was not your main residence for the whole time you owned it, some special rules may entitle you to a full exemption.
Continuing main residence status after a dwelling ceases to be your main residence
Section 118-145 of the ITAA 1997 allows you to choose to treat a dwelling as your main residence even though you no longer live in it.
If you do not use it to produce income (for example, you leave it vacant or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you stop living in it. If you do use it to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you stop living in it.
You cannot make this choice for a period before a dwelling first becomes your main residence. Additionally, if you use any part of the property to produce income before you stop living in it, section 118-145 of the ITAA 1997 will not apply to that part.
In your case, you have used a portion of the property to produce income. When you move out, you may choose to continue to treat the property as your main residence under section 118-145 of the ITAA 1997, but only to the extent that the property was not used to produce income. You can make this choice for up to six years if you intend to use it to produce rental income.