Edited version of private advice

Authorisation Number: 1052374302548

Date of advice: 19 March 2025

Ruling

Subject: CGT - main residence exemption

Question 1

Will you be liable for capital gains tax (CGT) on any capital gain made on the disposal of your property?

Answer 1

Yes. You do not meet the legislative requirements for a full exemption from capital gains tax on the disposal of the property. You will qualify for a partial exemption.

This ruling applies for the following period:

Year ended 30 June 20XX.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances

You purchased and owned a property located at Location A.

You resided in this property until XXX 20XX when you left Location A to pursue work.

You obtained work with Company A and housing was provided as part of this.

On XX XXX 20XX you entered into a lease agreement to rent out the property at Location A.

On XX XXX 20XX Royal Assent was given to a Bill before the stage government of State A. A section of this act applied to the tenancy agreement you had in place for the property at Location A.

This had the effect that the current lease in place was extended until XXX/XXX 20XX.

When that lease then expired the property remained vacant until it's sale in XXX 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-110(1)

Income Tax Assessment Act 1997 subsection 118-145(2)

Income Tax Assessment Act 1997 subsection 118-185(1)

Income Tax Assessment Act 1997 subsection 115-1

Reasons for decision

These reasons for decision accompany the Notice of private ruling for Person A.

This is to explain how we reached our decision. This is not part of the private ruling.

Question

Will you be liable for capital gains tax on any capital gain made on the disposal of the property at Location A?

Summary

You will be liable for CGT on the disposal of your property at Location A as you do not meet the legislative requirements for a full exemption. You will qualify for a partial exemption on the period of time in excess of the 6-year rule as well as being able to utilise the 50% CGT discount.

Detailed reasoning

Section 118-110 of the 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.

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

Section 118-145(2) of the ITAA 1997 further provides that if you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. This is called the absence rule.

Section 118-185(2) of the ITAA 1997 does allow for a partial main residence exemption where a dwelling is your main residence for part of your ownership period, and you did not acquire your interest in the dwelling as a beneficiary or trustee of a deceased estate. The full exemption is proportionally reduced by the period of time it was not your main residence

Section 115-1 of the ITAA 1997 also allows for a reduction in a capital gain by 50% where you purchased the dwelling after 21 September 1999, you have owned it for at least 12 months, and you are an Australian resident.

Application to your circumstances

The property at Location A was your main residence. In XXX 20XX, you left Location A in pursuit of work, gaining a position with Company A which came with provided accommodation. You chose to rent out your property from XXX 20XX.

During the Covid pandemic the state government passed legislation designed to place a moratorium on evictions in response to the pandemic, to better stabilise the rental market during that period. Among other things, the Bill meant that fixed term agreements that were due to expire during the defined emergency period were to continue as periodic agreements.

The tenancy agreement you had in place at the time was due to expire in XXX/XXX 20XX and because of this legislation it continued until XXX/XXX 20XX instead. This was a period of X years from when you initially leased out. This meant you could not utilise the 6-year rule to continue to treat the property as your main residence for CGT purposes. You have previously asked if this 6-year period can be extended but Section 118-145(2) of the ITAA 1997 does not provide the Commissioner with any discretionary powers to provide such an extension.

You have asked that you be exempt from capital gains tax payable on any capital gain made from the disposal of your property. You contend you have exceeded the 6-year absence rule through no fault of your own, bound as you were by the Bill passed by the state government.

You do not meet the legislative requirements detailed under the main residence exemption in section 118-110 of the ITAA 1997 that would allow for any capital gain to be fully disregarded. Again, this section of the legislation does not grant the Commissioner any discretionary powers with respect to circumstances beyond a taxpayer's control.

While this means that you are not fully exempt from paying tax on any capital gain you have made, section 118-145(2) of the ITAA 1997 does allow for a partial exemption as detailed under the heading 'More Information' above. Additionally, you are entitled to a 50% discount on your capital gain under section 115-1 of the ITAA 1997 as you had owned the property for at least 12 months