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Edited version of your private ruling
Authorisation Number: 1012442845627
Ruling
Subject: Capital gains tax
Question and answer:
Does the capital gains tax main residence exemption apply from the date you acquired the dwelling?
No.
This ruling applies for the following period
Year ending 30 June 2007
The scheme commenced on
1 July 2006
Relevant facts and circumstances
You purchased a residential dwelling in 200X.
You purchased the dwelling with the intention of it being your main residence.
At the time you purchased the dwelling there was a rental contract in place which did not expire until later in the year.
The tenant continued to occupy the dwelling under the rental contract after you acquired it.
You moved into the dwelling after the rental contract expired and the tenant moved out.
After a period of time you moved out of the dwelling and you sold it in 200Y.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-135
Income Tax Assessment Act 1997 Section 118-185
Tax Law Improvement Act (No.1) 1998
Reasons for decision
In general, your main residence (your home) is exempt from capital gains tax (CGT). A mere intention to occupy a dwelling as your main residence, without actually doing so, is not sufficient to obtain the exemption.
If you sell a dwelling you acquired on or after 20 September 1985, and that dwelling was not your main residence for the whole time you owned it, you get only a partial exemption as specified in section 118-185 of the Income Tax Assessment Act 1997 (ITAA 1997) .
Section 118-135 of the ITAA 1997 extends the main residence exemption to take account of the time needed to move into a dwelling. It includes the period from when you acquired the main residence to when it was 'first practicable' to move into the dwelling after it was acquired. However, the Explanatory Memorandum to the Bill which became the Tax Law Improvement Act (No.1) 1998 states that section 118-135 is not extended to the situation where the individual is unable to move into the dwelling because it is being rented out.
In your case, you purchased a dwelling which was occupied by a tenant under a pre-existing rental contract. The fact that there was a rental contract in place is not sufficient for you to be entitled to the extension of time granted under section 118-135 of the ITAA 1997. Based on the Explanatory Memorandum, you did not occupy the dwelling when it was first practicable to do so under section 118-135 of the ITAA 1997.
You will need to apportion any capital gain made on the disposal of the dwelling in accordance with subsection 118-185(2) of the ITAA 1997. No exemption is available prior to you occupying the dwelling as your main residence.