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Edited version of your written advice
Authorisation Number: 1051203782088
Date of advice: 22 March 2017
Ruling
Subject: Capital Gains Tax - Main residence exemption - Occupancy as soon as practicable
Question 1
Can you treat the property as your main residence from the date you move in?
Answer
Yes.
Question 2
Upon disposal of the property, will you be entitled to the full main residence exemption?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2017.
The scheme commences on:
1 July 2016.
Relevant facts and circumstances
The deceased died in 20XX.
The deceased purchased the property before 20 September 1985.
The deceased left the property to A and B as tenants in common in equal shares.
The deceased provided C with a right to occupy the property.
C resided in the property until 20XX.
B moved into the property as soon as practicable after C moved out and it has been B's main residence since that time.
A has lived overseas for many years and is not an Australian Resident for tax purposes.
A currently owns an investment property in Australia
A intends to return to Australia, move into the inherited property and treat it as their main residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-135,
Income Tax Assessment Act 1997 Section 118-110(1),
Income Tax Assessment Act 1997 Section 118-195 and
Income Tax Assessment Act 1997 Section 118-200(2).
Reasons for decision
Question 1
Under section 118-135 of the Income Tax Assessment Act 1997 (ITAA 1997), if you move into a dwelling as soon as it is first practicable after it was acquired, then the dwelling is treated as your main residence from when it was acquired and not the actual date that you move in. This is to account for situations where, for example, there is a delay in moving into a dwelling due to illness or other reasonable cause that is beyond your control.
The term 'as soon as practicable' is intended to apply in situations where moving into the dwelling is temporarily delayed due to matters outside your control and during the delay you do not take up residence elsewhere for a substantial period.
Having an intention or desire to move into the property when convenient does not allow you to have your period of main residence commence from the start of your ownership interest rather than when you actually move into the dwelling.
In your situation, you inherited the dwelling. Although the property was initially subject to a right to occupy, the delay in your moving into the dwelling once the right to occupy ended was not due to factors that were outside of your control. Therefore, the property will only be treated as your main residence from the date that you move into it.
Question 2
The main residence exemption is contained in subsection 118-110(1) of the ITAA 1997, which provides that a capital gain or capital loss made by an individual from a capital gains tax (CGT) event that happens in relation to a dwelling is disregarded if the dwelling was their main residence throughout their ownership period. As you did not move into the property as soon as practicable, you are not entitled to the full main residence exemption.
Section 118-195 of the ITAA 1997 provides that an executor (or beneficiary) will be entitled to a full main residence exemption where the:
● deceased acquired dwelling prior to 20 September 1985; OR
● deceased acquired dwelling after 20 September 1985 and it was their main residence just prior to their death
AND
● you (either the executor or beneficiary) disposed of the ownership interest within 2 years of the deceased's date of death (note that the Commissioner may extend the two year period) OR
● from the deceased's death until you disposed of your ownership interest, the dwelling was not used to produce income and was the main residence of one or more of:
● a person who was the spouse of the deceased immediately before the deceased's death
● an individual who had a right to occupy under the deceased's will
● you, as a beneficiary, if you disposed of the dwelling as a beneficiary
In your case, the deceased acquired the property prior to 20 September 1985, however from the deceased's death until the disposal of the property, it was not the main residence of the listed persons above, as the person with the right to occupy moved out of the property in 20XX and you have not yet moved into the property.
You will, however be entitled to a partial exemption under subsection 118-200(2) of the ITAA 1997.
You calculate the capital gain or capital loss is as follows:
Capital gain or capital loss amount |
x |
Non-main residence days |
Non-main residence days - numbers of days in the period from the date of death until settlement of the contract that the dwelling was not the main residence of:
● person who was the spouse of the deceased immediately before the deceased's death
● an individual who had a right to occupy the home under the deceased's will
● you, as a beneficiary, if you disposed of the dwelling as a beneficiary.
Total days - the number of days from the date of death until you disposed of your ownership interest