Edited version of your written advice

Authorisation Number: 1013086886514

Date of advice: 8 September 2016

Ruling

Subject: Main residence exemption

Question 1

Are you able to disregard any capital gains tax on your property, as per section 118-145 of the Income Tax Assessment Act 1997?

Answer

No.

Question 2

Are you able to partially disregard any capital gains tax on your property, as per section 118-185 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 2017

The scheme commences on

1 July 2016

Relevant facts and circumstances

You purchased and moved into the property in mid 200X.

Your employment required you to move states in late 200X.

You rented the property from late 200X to mid 20XX, at which time you recommenced residing at the property.

In early 20YY, you returned to the property location however it was leased until mid 20XX.

You continued to consider the property your main residence during your absence.

Relevant legislative provisions

Section 102-20 of the Income Tax Assessment Act 1997

Section 118-110 of the Income Tax Assessment Act 1997

Section 118-145 of the Income Tax Assessment Act 1997

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a CGT event. The most common event is CGT event A1 which occurs when a person disposes of a CGT asset.

You may disregard a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence (section 118-110 of the ITAA 1997).  

In your circumstance, the property was your main residence however you were required to vacate it for a period spanning 6.5 years. During this time, you used the property to earn assessable income.

Section 118-145 of the ITAA 1997 states that you are able to treat a property as your main residence for a period of up to 6 years if you are using that property to earn assessable income. You are unable to disregard the CGT for the period attributable to any time after the 6 years has elapsed.

Section 118-185 of the ITAA 1997 outlines that a partial exemption for CGT may apply if the property was your main residence for only part of your ownership period. The legislative section goes on to outline how to calculate your capital gain, as below:

Example: You bought a house in July 1990 and moved in immediately. In July 1993, you moved out and began to rent it. You sold it in July 2000, making (apart from this Subdivision) a capital gain of $10,000.

You choose to continue to treat the dwelling as your main residence under section 118-145 (about absences) for the first 6 of the 7 years during which you rented the house out.

In your circumstances, the property qualifies as your main residence from the date of purchase in mid 200X. You then were required to move in late 200X, after which you rented the property. For 6 years from the date you rented the property, you remain eligible to treat it as your main residence, thereby retaining the CGT exemption. As you rented the property for a period longer than 6 years, you not eligible to disregard any CGT for the period from 6 years and 1 day you rented the property until the day before you moved back into it. On the date you moved back into the property, the property re-qualifies as your main residence.

This means, you will be required to pay CGT for the time between 6 years and 1 day from when you rented the property until the day before you moved back in.

When you sell the property, you will need to calculate the period you held the property (in days), and the number of days you are ineligible to treat the property as your main residence using the formula provided above. This formula will calculate the amount of partial exemption to which you are eligible.