Edited version of private advice

Authorisation Number: 1052127198885

Date of advice: 14 June 2023

Ruling

Subject: Capital gains tax

Question 1

Are you entitled to a full main residence exemption on Property Z?

Answer

No.

Question 2

Are you entitled to a partial main residence exemption on Property Z?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You and your spouse purchased Property Z several years ago.

It was you and your spouse's intention to move into Property Z and treat it as your main residence within 6 months of selling your then main residence at Property Y.

Within a week of purchasing Property Z you were diagnosed with an illness and the sale of your then main residence at Property Y was put on hold.

You and your spouse remained living in the then current main residence at Property Y until you decided to sell it.

You rented Property Z out for several years.

AT the end of the rental period you decided to sell Property Y.

The tenants moved out of Property Z and you moved in the following month.

The property was vacant for a few weeks and repairs and renovations were carried out on it prior to you moving in.

You intended to be in this property for a long period and were going to carry out further improvements over the coming months.

A few months later you had a work accident.

You have not been able to work since the accident.

You have undergone treatment and operations.

Your household earning capacity suffered during this period.

In a later year you made the decision to move from the area to purchase a cheaper home and decrease your living expenses.

You downsized to a property in a gated community.

Property Z was sold in the following year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-185

Reasons for decision

You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss.

You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it.

You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it.

Capital gains tax is not a separate tax, it forms part of your assessable income and is taxed at your marginal tax rate.

CGT main residence

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income.

As Property Z was not your main residence for the whole of your ownership period and you rented it out for several years you cannot have a full main residence on the property.

Partial main residence exemption

Where a full exemption is not available, you may be entitled to a partial exemption under section 118-185 of the ITAA 1997.

You calculate your capital gain or capital loss as follows:

Non-main residence days

Capital gain or capital loss amount × Total days Non-main residence days / total number of days

You are entitled to a partial main residence exemption from the time when you moved into Property Z to the date when you sold Property Z.

The Commissioner has no discretion to exempt Property Z from CGT for the whole of your ownership period.