Edited version of your written advice

Authorisation Number: 1013137214517

Date of advice: 8 December 2016

Ruling

Subject: Main Residence Exemption

Question

Are you eligible for the main residence exemption with respect to any capital gains arising from the potential disposal of your dwelling?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20ZZ

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

In 20TT your parent acquired a property.

You moved into the dwelling on the property with your parent in 20UU.

You acquired a 50% interest in the property in 20VV and lived there until 20WW, when you moved away work.

From 20XX the property was rented and occupied by tenants.

In 20YY, the occupants requested an extension to their lease which was extended until 20YY.

You acquired the remaining 50% interest in the property in March 20YY from your parent, making you the sole owner of the property.

You moved back into the property in 20YY.

You have not owned any other property during this time and have maintained that the property has been your main residence since you moved in in 20UU.

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 118-145

Reasons for decision

Summary

You are entitled to a full main residence exemption as you satisfy the absence rule.

Detailed reasoning

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that you make a capital gain or capital loss as a result of a CGT event. The sale of a dwelling would constitute CGT event A1 as stated in section 104-10 of the ITAA 1997.

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 118-145 of the ITAA 1997 allows you to treat a dwelling (that was you main residence) as your main residence indefinitely, if you do not use it for the purpose of producing assessable income. However, if you do use it for that purpose, you can only treat the dwelling as your main residence for a maximum period of six years while you use it for that purpose.

For any period(s) you choose to apply the main residence exemption, you cannot treat any other dwelling as your main residence for that period of time.

In your case, you purchased an initial interest in the property and treated the dwelling as your main residence. You moved out and did not acquire another property, but chose to treat the property as your main residence for that period of time. In your absence, the dwelling was used to produce income and rented out for four years and seven months, less than six years. The purchase of the remaining interest in the property in January 20XX from your parent does not have any capital gains implications as the dwelling was your main residence.

Therefore, as you did not have another main residence and the dwelling was used to produce income in your absence for less than six years, you are entitled to the full main residence exemption and can disregard the capital gain you made on the sale of the property.

If you are absent more than once during the period you own the home, the six year maximum period that you can treat it as your main residence while you use it to produce income applies separately to each period of absence.