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Edited version of your written advice
Authorisation Number: 1051177282758
Date of advice: 5 January 2017
Ruling
Subject: Cost base - main residence exemption
Question 1
When calculating the capital gain on your dwelling, do you take the original purchase price and costs against the sale price and then reduce the gross gain by the percentage of time it was a main residence?
Answer
Yes.
Question 2
Do you need to acquire a valuation of the property on the day you moved out so that the capital gain will be based on the sale price, less the adjusted valuation plus costs?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2016.
The scheme commences on:
1 July 2015.
Relevant facts and circumstances
You purchased a residential property (the dwelling).
You did not own any other dwelling at the time of acquisition.
You moved into the dwelling two years later and it became your main residence.
Before moving in, the dwelling was vacant and was not rented out.
Some years later, you acquired another property and moved out of the dwelling.
At this point, the dwelling ceased to be your main residence.
The dwelling remained vacant and was not available for rent for several years until it was sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-10
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 102-25
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-185
Reasons for decision
Summary
The first element of your cost base will be the dwelling's purchase price. You can claim a partial main residence exemption.
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 110-25 of the ITAA 1997 sets out the general rules of cost base. The cost base of a CGT asset consists of five elements.
1. The total of any money you have paid to acquire the asset;
2. The incidental costs incurred in acquiring the asset (such as stamp duty and brokerage fees);
3. Non-capital costs of ownership (such as interest and costs of maintaining the asset etc);
4. Capital expenditure incurred to increase or preserve the asset's value; and
5. Any costs incurred to establish, preserve or defend your title to the asset.
In your case, the first element of your cost base will be the dwelling's purchase price. You do not need to acquire a valuation of the property on the day you moved out of the dwelling.
Main residence exemption
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.
Section 118-185 of the ITAA 1997 states that if a dwelling was your main residence for only part of your ownership period, you will only get a partial exemption for a CGT event that occurs in relation to the dwelling. The capital gain or loss is calculated using the following formula:
Total capital gain or loss x |
Non-main residence days |
Total days in your ownership period |
As the dwelling was your main residence for only part of your ownership period, you can claim a partial main residence exemption for the period the dwelling was your main residence.