Edited version of private advice

Authorisation Number: 1052375171349

Date of advice: 19 March 2025

Ruling

Subject: Capital gains tax

Question 1

Are you entitled to a full main residence exemption on the property?

Answer 1

No.

Question 2

Are you entitled to a partial main residence exemption on the property?

Answer 2

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your sibling acquired a property (the property) several years ago, as joint tenants.

You moved into the property on settlement and commenced treating the property as your main residence.

A couple of years after the property was purchased you and your sibling entered a contract for your sibling to transfer their ownership interest into your name.

Settlement for the transfer took place a few months after you entered into the contract.

You commenced moving out of the property during the transfer process and rented a room from a friend.

In the middle of the year, the property was leased to a tenant (not a related party).

You elect to use the absence rule in section 118-145 to treat the property as your main residence for the period you were not living in it and was renting it out.

Several months after you started renting the property, you moved in with your spouse on a genuine domestic basis and you commenced treating your spouse's home as your main residence.

You make the choice to treat your spouse's house as your main residence from the date you moved into your spouse's property until your property is sold.

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

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-125

Income Tax Assessment Act 1997 section 118-200

Income Tax Assessment Act 1997 section 118-145

Income Tax Assessment Act 1997 section 118-170

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (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 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.

You can have a partial main residence exemption under Section 118-200 of the ITAA 1997 if you have used the property to derive assessable income at any time during your ownership period.

You treated the property as your main residence from when it was acquired.

You then rented the property out.

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 for an indefinite period if it is vacant or up to 6 years if it is rented out.

You elect to treat the property as your main residence from when you moved out of the property to rent a room from a friend and during the period it is rented until you commenced treating your spouse's property as your main residence.

Spouses having different main residence

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 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.

You moved in and commenced treating your spouse's property as your main residence and will continue to treat their property as your main residence until your property is sold.

Application to your circumstances:

You are not entitled to the full main residence exemption on the property when it is sold.

You are entitled to a partial main residence exemption for the relevant period.