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Edited version of your written advice
Authorisation Number: 1012977242629
Date of advice: 26 February 2016
Ruling
Subject: Capital gains tax
Question 1
Will you be fully exempt from paying capital gains tax on the disposal of your property?
Answer
No.
Question 2
Will you be partially exempt from paying capital gains tax on the disposal of your property?
Answer
Yes.
Question 3
Are you able to continue to treat the property as your main residence for capital gains tax purposes for up to six years where the property is used to produce rent?
Answer
Yes.
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
You purchased a property in 20XX.
You had always intended to treat this property as your primary place of residence.
You were not able to move into the property on the settlement date as there was an existing tenant from the previous owner. As a result you had to lease this property for a short period of time.
Later in 20XX, you advise that you moved into the dwelling as soon as practicable after some time cleaning up from the previous tenants.
You later moved out in 20YY and the property has been available for rent since then.
You are not treating any other property as your main residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20,
Income Tax Assessment Act 1997 Section 118-110 and
Income Tax Assessment Act 1997 Section 118-145.
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset to someone else. For example, if you sell a property, land and dwellings are CGT assets.
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.
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). You only get a partial exemption for a CGT event that happens in relation to your ownership interest in a property if the dwelling was your main residence for only part of your ownership period.
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. However, if there is a delay in moving in because of illness or other unforeseen circumstances, the exemption may still be available from the time you acquired your ownership interest in the dwelling. ATO ID 2001/744 Income tax: Capital gains tax: moving into a dwelling, explains that if you could not move in to a property because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest. A mere intention to occupy a dwelling as your main residence - without actually doing so - is not sufficient to obtain the exemption. In your case, it is the date at which you moved into the property that it can be considered to have become your main residence. As the property was purchased prior to this date, the sale of the property will not be fully exempt from CGT.
Question 2
If a CGT event happens to 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 may be eligible for a partial exemption. In your case, you are eligible for a partial exemption based on the fact that the property became your main residence in 20XX after you moved in.
The part of the capital gain that is taxable is calculated as follows:
Total capital gain made |
x |
number of days in your ownership period |
Note that your ownership period begins on the date of settlement and not the contract purchase date.
Question 3
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.
In your case, you advise that the property has been rented out since 20YY. For CGT purposes, you may continue to treat this property as your main residence for up to six years after this date without it having any effect on your partial exemption.