Edited version of your private ruling

Authorisation Number: 1012464210086

Ruling

Subject: Capital Gains Tax - disposal of intended main residence

Question: Are you entitled to the main residence exemption on disposal of your apartment?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2012

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.

After 20 September 19XX, you and your ex-spouse purchased an apartment off the plan.

Settlement occurred two year later, and the apartment was rented out.

Approximately two years later you separated from your spouse. Emotionally upset you took leave from work and went backpacking around a foreign country for approximately a year.

The following year you returned to Australia and resided in shared accommodation in a suburb of a capital city.

The same year you were divorced and property settlement occurred. Under the property settlement the family residence was to be transferred to your ex-spouse and the apartment was to be transferred to you.

You were emotionally unsettled so you continued to rent the apartment out.

You travelled back to the foreign country for six months the following year where you married and arranged immigration for your spouse.

Since marrying you have retired from employment in Australia and you returned to the foreign country to live with your spouse.

In late X year you and your spouse returned to Australia.

You initially planned to reside in the apartment but you did not like the local busy environment.

You will dispose of the apartment and buy another residence in another suburb.

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 118-135.

Income Tax Assessment Act 1997 Section 118-145.

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.

Generally you can disregard a capital gain or capital loss made on the disposal of a property that is your main residence if:

· the property was your main residence for the whole period you owned it

· the property was not used to produce assessable income, and

· any land on which the dwelling is situated is not more than two hectares.

If you are not fully exempt, you may be partially exempt if you meet at least one of the above tests but:

· the dwelling was your main residence during only part of the period you owned it

· you used the dwelling to produce assessable income while you resided there, or

· the land on which the dwelling is situated is more than two hectares.

Your entitlement to any main residence exemption is tied to the dwelling becoming your main residence. The term main residence is not defined in the Income Tax Assessment Act 1997 and takes its ordinary legal meaning which is worked out objectively and with the benefit of hindsight.

Taxation Determination TD 51 did set out what factors are taken into account in determining whether or not a dwelling is an individual's main residence.

The relevant factors in determining whether a dwelling is an individual's main residence include (but are not limited to):

· the length of time the individual has lived in the dwelling

· whether the individual's personal belongings have been moved into the dwelling

· the address to which the individual's mail is sent

· the connection of services such as telephone, gas and electricity, and

· the individual's address on the Electoral Roll.

It also states that a mere intention to construct a dwelling or to occupy a dwelling as a main residence, but without actually doing so, is insufficient to obtain this main residence exemption. You must actually occupy the dwelling.

In some cases, you can choose to treat a dwelling as your main residence even though you no longer live in it. You cannot make this choice for a period before a dwelling first becomes your main residence.

In your case, you never resided in the apartment.

Therefore, you are not entitled to the main residence exemption as you have never resided at the apartment and you cannot make the choice to elect the apartment as your main residence during the period you resided in rented accommodation or overseas.

While we appreciate your particular circumstances, the Commissioner has no discretion to disregard any capital gain or capital loss you make upon the disposal of the apartment.

As you meet all the relevant criteria you can use the discount method to calculate your capital gain.

The discount percentage is 50% for individuals.

For further information on how to calculate your capital gain or capital loss please the enclosed information - this information was taken from the Guide to capital gains tax 2011-12 (NAT 4151). Information is also available on our website - www.ato.gov.au.