Edited version of private advice

Authorisation Number: 1052189187659

Date of advice: 03 November 2023

Ruling

Subject: CGT - main residence exemption

Question

Are you eligible for the full main residence exemption on the disposal of your ownership interest in the property?

Answer

No.

This ruling applies for the following period:

Year ended 20XX

The scheme commenced on:

1 January 2019

Relevant facts and circumstances

You and your spouse purchased your home at Property A, as your main place of residence on XX July 20XX

You and your spouse moved to Country A. You both lived in Country A while your spouse was employed overseas with Company A. This was from January 20XX until June 20XX.

The Property A was privately rented whilst you were both overseas.

You both considered Property A as your main residence for tax purposes during this time.

You and your spouse did not own your own home in Country A.

The posting in Country A was extended by 6 months, until XX June 20XX.

On the XX June 20XX you and spouse returned to Australia, visiting family until you moved into your new residence on the XX July 20XX.

You and your spouse purchased your new home - Property B on the XX February 20XX, which remained vacant until you both moved into this property on the XX July 20XX. This property was not used to produce any assessable income between settlement and when you both moved in.

The tenants moved out of Property A on the XX September 20XX.

The Property A was sold XX September 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-140

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-135

Reasons for decision

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.

In addition, to meet the requirements of the full main residence exemption, you must not be an excluded foreign resident (see subsection 118-110(4) of the ITAA 1997), and the maximum area of adjacent land covered by the exemption is 2 hectares, less the area of the land immediately under the dwelling (see subsection 118-120(3) of the ITAA 1997.

Section 118-140 of the Income Tax Assessment Act 1997 (ITAA1997) provides that when an individual acquires an ownership interest in a dwelling that is to become their main residence and they retain ownership interest in your existing main residence, they cannot treat both dwellings as their main residence for any period of time if they did not reside in their existing main residence for at least three months continuously in the 12 months prior to the acquisition of the new main residence, or if the existing residence was used to gain or incur assessable income at any time in the 12 months prior to acquiring the new main residence.

Application to your circumstances:

You purchased Property A as your main residence in July 20XX. You lived in this property from July 20XX - January 20XX, and it was still treated as your main residence under the absence choice until June 20XX.

From January 20XX until September 20XX the property was rented out whilst you and your spouse were living and working overseas.

Before returning to Australia, you purchased a new property - Property B on XX February 20XX, whilst you still retained ownership at Property A.

On the XX June 20XX you and spouse returned to Australia, visiting family until you moved into your new residence on the XX July 20XX. At no point did you move back into Property A prior to it being sold on XX September 20XX, as it was rented out continuously up until a couple of days prior to it being sold.

As such, you will not be able to use the 6-month changing main residence rule as you rented out Property A during the 12 months prior to purchasing the new residence, and consequently you will not meet the requirement in paragraph 118-140(2)(b) of the ITAA 1997. In addition, you did not live in the property for a minimum of 3 months in the 12 months prior to the disposal of the property, therefore, you will not meet the requirement in 118-140 (2)(a).

Therefore, you cannot apply the full main residence exemption to the sale of Property A.

Other relevant comments:

Please refer to the following pages on our website ato.gov.au for further information relating to Capital gains tax exemptions and claiming a partial exemption.

QC 66033 Using your home for rental or business

QC 18138 Capital gain tax property exemption tool