| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012974050292
Date of advice: 25 February 2016
Ruling
Subject: Capital gains tax
Question 1
Will you be liable for capital gains tax on the disposal of your property?
Answer
No.
Question 2
Will you be liable for capital gains tax on the disposal of your property if you decide to first rent it out for a period of time (up to six years)?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
The scheme commences on:
1 July 2015
Relevant facts and circumstances
Your home was built on vacant land. It was purchased and completed prior to 20 September 1985. You moved into the home with your former spouse as soon as it was completed.
It has been your primary residence and your name has been on the title since it was purchased
After 20 September 1985 you and your former spouse separated. You entered into a shared equity agreement with a lender which enabled you to pay out your former spouse's share of the property. The lender took an interest in the property along with you.
This loan was later restructured.
You have paid off the mortgage and are in the process of obtaining a valuation and a figure to pay out the lender's remaining share of your home.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20,
Income Tax Assessment Act 1997 Section 118-10 and
Income Tax Assessment Act 1997 Section 118-145.
Reasons for decision
Question 1
Detailed reasoning
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a capital gains tax (CGT) event occurring. The most common CGT event, A1, occurs when you dispose of a CGT asset. For example, if you sell a property, land and dwellings are CGT assets.
In determining whether an asset is a CGT asset, the timing of the asset's acquisition is important. Under section 100-25 of the ITAA 1997, CGT does not apply to assets that you owned before 20 September 1985. However, it is possible to have more than one ownership interest in a property. For example, your interest in the property which you acquired upon initially purchasing it with your former spouse is a pre CGT asset and is therefore exempt from CGT. However, your remaining interest in the property (that which you received after you and your former spouse separated and that which you intend to acquire from your lender in the future) are considered to be separate CGT assets acquired after 20 September 1985. Any CGT arising from your post CGT ownership interests can be disregarded under the main residence exemption.
Under section 118-110 of the ITAA 1997, you can generally disregard any capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence for the entire period you owned it when:
• the dwelling was your home for the whole period you owned it;
• the dwelling was not used to produce assessable income; and
• any land on which the dwelling is situated is not more than two hectares.
A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved into it as soon as practicable after that time. If you purchased the dwelling this would generally be the date of settlement of the purchase contract. In your case, you advise that you have lived in the home and it has been your primary residence since its construction was completed. The property has never been used to produce assessable income and the land on which the main residence stands is less than two hectares. As a result, the main residence exemption applies and the sale of your property would be fully exempt from CGT.
Question 2
Detailed reasoning
Once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence during periods of absence. Section 118-145 of the ITAA 1997, provides where the dwelling is rented, the maximum period that you may continue to treat the dwelling as your main residence is six years. You are entitled to another maximum period of six years each time the dwelling becomes and ceases to be your main residence. Therefore, if you decide to rent out your property, there will be no CGT consequences provided it is not rented out for longer than six years at a time.
Note that you are only able to treat one dwelling as your main residence at any time (apart from limited circumstances where you are changing main residences).