Edited version of your written advice

Authorisation Number: 1012763233490

Ruling

Subject: Main residence exemption

Question 1

Can you choose to continue to treat the first property as your main residence for the duration of your ownership?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

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.

You purchased the first property during the 200X financial year.

You moved into the property for at least six months.

You then moved in with your parents.

You rented out the property.

You purchased a second property during the 20XX financial year.

You rented out the second property straight away.

You moved into the second property in 20YY.

You sold the first property in early 2014.

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 118-185.

Income Tax Assessment Act 1997 Section 118-145.

Reasons for decision

Capital Gains Tax

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that you make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset.

According to section 104-10 of the ITAA 1997, CGT event A1 will happen when you dispose of the CGT asset to someone else. Property is a CGT asset.

Main Residence Exemption

Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence.

To get a full exemption from CGT, you must satisfy the following conditions:

• the dwelling must have been your home for the whole ownership period;

• the dwelling must not have been used to produce assessable income; and

• any land on which the dwelling is situated must be two hectares or less.

Section 118-185 of the ITAA 1997 states, however, that if the dwelling was not your main residence for the entire ownership period, you will be entitled to a partial exemption from capital gains tax.

Continuing main residence status during absence

In some cases, you can choose to treat a dwelling as your main residence even though you no longer live in it.

Section 118-145 of the ITAA 1997 provides that you can continue to treat a dwelling as your main residence during periods of absence.

If the dwelling is not used to produce income, it can be treated as your main residence indefinitely.

Subsection 118-145(2) states that if the dwelling is used to produce income, the maximum period that you can choose to treat it as your main residence, while you use it for the purpose of producing income, is six years.

You are entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, your main residence. There is no discretion to extend the six year period.

Under subsection 118-145(4), it is important to note that if you make the choice to treat that dwelling as your main residence, you cannot treat any other dwelling as your main residence while you apply this section, except if section 118-140 of the ITAA 1997 (changing main residence) applies.

In your case, the first property was your main residence and has been used to produce assessable income for less than six years. Therefore you can elect to treat the first property as your main residence for the duration of your ownership. As such any capital gains or loss will be disregarded.