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Edited version of your written advice
Authorisation Number: 1012747163357
Ruling
Subject: CGT - main residence exemption
Question
Can you choose for section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply to treat the property as your main residence for the period it was leased?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
You acquired the property.
At the time of purchase, there was an existing lease on the property.
It was your intention when you purchased the property to live in it and raise your children there as it is close to good schools.
You have been living with a family member without claiming any other residence as your main residence for the relevant period.
You intend to move into the property.
Relevant legislative provisions
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
Section 118-110 of the ITAA 1997 states that you disregard any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period.
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 treats a dwelling as your main residence from the date it was acquired provided that you moved into it as soon as it was practicable to do so after it was acquired. However, the Explanatory Memorandum to the Tax Law Improvement Bill (No. 1) 1998 explains that section 118-135 of the ITAA 1997 is not extended to the situation where the individual is unable to move into the dwelling because it is being rented out.
In this case, when you purchased the property an existing lease was in place. We do not consider that you will move into the property when it was first practicable to do so. Accordingly section 118-135 of the ITAA 1997 will not apply and the property will only become your main residence once you have moved into it.
Section 118-145 of the ITAA 1997 provides that if a dwelling that was your main residence ceases to be your main residence, you can choose to treat that dwelling as your main residence for capital gains tax purposes.
As the property has not been your main residence to date, you are not eligible to make a choice under section 118-145 of the ITAA 1997 to treat the property as your main residence for the period it has been leased.