Edited version of private advice

Authorisation Number: 1052078280821

Date of advice: 3 February 2023

Ruling

Subject: CGT - main residence exemption

Question 1

Are you able to claim the full main residence exemption for the sale of the property at XXXX under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are you able to claim a partial main residence exemption for the sale of the property at XXXX under section 118-185 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

Year ending XX June 20XX

The scheme commences on:

XX July 20XX

Relevant facts and circumstances

On XX February 20XX, you paid a deposit for 'the Property' at XXXX

You or your children being Child 1 date of birth XX August 19XX and Child 2 date of birth XX September 19XX were not an Australian resident at the time of purchase.

The contract sale date for the Property was the XX March 20XX, but ownership took place on the XX October 20XX.

On the XX October 20XX to XX July 20XX Child 1 lived in the Property.

On the XX January 20XX to XX July 20XX Child 2 lived in the Property.

You visited the Property on XX separate occasions staying for a period of weeks at a time. The dates are as follows January 20XX to February 20XX, July 20XX to August 20XX, November 20XX to December 20XX, May 20XX to June 20XX and June 20XX to July 20XX.

You and your spouse are a resident of Country1.

You and your spouse financially support your children whilst in Country 1.

The Property was never available to rent.

The land on which the Property is on is less than 2 hectares.

You sold the property on the XX July 20XX.

You will choose the Property as the main residence of your Child 2 under section 118-175 of the ITAA 1997 during the period XX January 20XX to XX September 20XX.

You will choose the Property as the main residence of you and your spouse under section 118-170 of the ITAA 1997 during the period XX January 20XX to XX July 20XX.

You will choose to continue to treat the Property as your main residence under section 118-145 of the ITAA 1997 during the period XX September 20XX to XX July 20XX.

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 108-5(1)

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-125

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-170

Income Tax Assessment Act 1997 section 118-175

Income Tax Assessment Act 1997 section 118-185

Reasons for decision

Summary

You are not entitled to claim the full main residence exemption for the sale of "the Property" at XXXX under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Section 102-20 of the ITAA 1997 provides that you make a capital gain or capital loss if and only if a CGT event happens. The most common CGT event, CGT event A1, occurs pursuant to section 104-10 of the ITAA 1997 when you dispose of a CGT asset. Land and buildings are CGT assets within the meaning of section 108-5 of the ITAA 1997. The time of the CGT event A1 is generally when you enter into the contract for the disposal (subsection 104-10(3) of the ITAA 1997).

Section 118-110 of the ITAA 1997 states that any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period is disregarded.

Section 118-125 of the ITAA 1997 states that your ownership period of a dwelling is the period on or after 20 September 1985 when you had an ownership interest in a dwelling or the land (acquired on or after 20 September 1985) on which the dwelling is later built.

Changing your main residence with choices

Dependent child having different main residence

Section 118-175 of the ITAA 1997 states that if a dwelling is your main residence and another dwelling is the main residence of a child of yours who is under 18 and is dependent on you for economic support, you must choose one of them as the main residence of both of you.

Spouses having different main residences

Section 118-170 of the ITAA 1997 deals with a situation where, during a particular period, you have a main residence and your spouse has a different main residence.

Section 118-170 of the ITAA 1997 states:

(1) If, during a period, a dwelling is your main residence and another dwelling is the main residence of your spouse (except a spouse living permanently separately and apart from you), you and your spouse must either:

(a)         choose one of the dwellings as the main residence of both of you for the period; or

(b)         nominate the different dwellings as your main residences for the period.

(2) If you nominate the different dwellings as your main residences for the period, you split the exemption in accordance with subsections (3) and (4).

(3) If your interest in the dwelling you chose was not, during the period, more than half of the total interests in the dwelling, the dwelling is taken to have been your main residence during the period. Otherwise, the dwelling is taken to have been your main residence for half of the period.

(4) If your spouse's interest in the dwelling your spouse chose was not, during the period, more than half of the total interests in the dwelling, the dwelling is taken to have been your spouse's main residence during the period.

Otherwise, the dwelling is taken to have been your spouse's main residence for half of the period.

The nomination rule applies to each home the spouses own whether or not they have sole ownership or own the home jointly (either as joint tenants or tenants in common). That is, there is no requirement that they both have an interest in the nominated dwelling.

This rule applies also if you choose to treat a dwelling as your main residence when you no longer live in it, and this choice results in your having a different main residence from your spouse for a period.

Continue to treat the property as your main residence

Section 118-145 of the ITAA 1997 states if a dwelling that is your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence of both of you.

Conclusion

You will use the choice to treat the Property as a main residence in section 118-175 of the ITAA 1997 for both you and Child 2 for the period XX January 20XX until they reached the age of 18.

You will use the spouse choice under section 118-170 of the ITAA 1997 to treat the Property as your spouse's main residence at all times that it was your main residence.

You will use the absence choice under section 118-145 of the ITAA 1997 to extend the main residence exemption, the period from when your youngest daughter turned the age of 18 until you dispose of it can be included in main residence days.

On the XX February 20XX, you paid a deposit and on the XX October 20XX you took ownership of the Property. You sold the Property on XX July 20XX. Your ownership period for main residence purposes is from XX October 20XX until 18 July 20XX.

You never actually resided at the Property as your main residence. You have chosen to treat the Property as your main residence from XX January 20XX, when Child 2 took up residency in the Property.

You are not eligible for a full main residence exemption on disposal of the Property as the Property was not your main residence for the entire ownership period. That is the Property was not your main residence for the first couple of months.

Question 2

Summary

As you do not meet the criteria under section 118-110 of the ITAA 1997, you are entitled to claim a partial main residence exemption for the sale of "the Property" at XXXX under section 118-185.

Detailed reasoning

Partial main residence exemption

Subsection 118-185(1) of the ITAA 1997 provides that you may only be entitled to a partial main residence exemption, where a dwelling was your main residence during part of the ownership period. This partial exemption is to be calculated in accordance with the formula contained in subsection 118-185(2) which applies to adjust the capital gain or loss amount calculated on disposal of the property to take into account the proportion of your main residence days to the total number of ownership days in the property.

Subsection 118-185(2) states that:

(2) You calculate your *capital gain or *capital loss using the formula:

CG or CL amount x Non-main residence days

Days in your ownership period

Where:

• 'CG or CL amount' is the capital gain or capital loss you would have made from the CGT event apart from Subdivision 118-B; and
• 'Non-main residence days' is the number of days in your ownership period when the dwelling was not your main residence.

Conclusion

In accordance with section 118-185 of the ITAA 1997, you are only entitled to a partial main residence exemption as you could only choose to treat the Property as your main residence from the date Child 2 moved into the dwelling on XX January 20XX, to the end of your ownership period on the settlement date for the disposal of the Property.

To calculate your partial capital gain, please refer to the formula stated in subsection 118-185(2) of the ITAA 1997. The Non-main residence days will be from settlement date of the contract to purchase the Property to the day before Child 2 moved into the Property. The ownership period will be the number of days between the purchase and disposal settlement dates.