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Edited version of your written advice
Authorisation Number: 1051413588256
Date of advice: 27 September 2018
Ruling
Subject: Capital gains tax
Can you use your own alternative calculation method to the one provided in subsection 118-185 of Income Tax Assessment Act 1997, to apportion the capital gain you made on the sale of your property?
Answer
No
This ruling applies for the following period:
June 20XX
The scheme commences on:
June 20XX
Relevant facts and circumstances
You bought a house in mth/20XX.
You bought this house with the intention for it to be your main residence.
You decided to rent out the property instead.
You rented the property out from mth/20XX to mth/20XX.
During the rental period you didn’t claim another property as your main residence.
In mth/20XX you moved into the property making it your main residence.
You lived in the property for XX years.
You then decided to sell the property due to personal reasons.
You entered into a contract of sale in mth/20XX
Settlement for the property occurred in mth/20XX
Your property significantly increased in value while you claimed the property as your main residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 118-B
Income Tax Assessment Act 1997 Subsection 118-185
Reasons for decision
Division 118 of the Income Tax Assessment Act 1997 (ITAA 1997) provides various exemptions for capital gains and losses made on Capital Gains events. Subdivision 118B of the ITAA 1997 provides the main residence exemption for individual, which allows any capital gain made on the sale of an individual’s main residence to be exempt from Australian taxation either in full or in part.
Your main residence is considered to be the property in which you currently dwell in.
You are eligible for a full exemption from capital gains tax (CGT) if the property you are selling has been your main residence for the whole of your ownership period and you haven’t used it to produce or gain assessable income.
If you have at any stage used your property to gain assessable income or claimed another property as your main residence you will be unable to claim a full exemption, but may be eligible for a partial exemption from any capital gain made on the sale.
Subsection 118-185 of the ITAA 1997 describes that when the property was your main residence for only part of your ownership period, you have to apportion any capital gain made on the sale of the dwelling using the legislative formula provided. Before applying the formula you must satisfy the requirements outlined below:
You get only a partial exemption for a CGT event that happens in relation to a dwelling or your ownership interest in it if:
a. you are an individual; and
b. the dwelling was your main residence for part only of your ownership period; and
c. the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.
In your case, you purchased the property with the intention of using it as your main residence, but decided to rent it out to before you moved in and made it your main residence. After renting it out for approximately XX years you decided to move into the dwelling on date/mth/20XX and began treating it as your main residence.
Under subsection 118-185 of the ITAA 1997 you would be eligible for a partial exemption as you are an individual, the dwelling in question was your main residence for part of your ownership period and the property was not inherited or passed to you by virtue of being a beneficiary of a trust.
This means you must use the legislative formula provided in subsection 118-185 and apportion any capital gain made on the sale of the property. This gain must be declared in the year the date the contract was signed and may be offset by any recognised capital loss you had previously made in past years. You are not entitled to use an alternative calculation of your own design.