Private ruling: CGT - main residence exemption and the first income use rule
Date of advice: 31 May 2022
Published: August 2022
Ruling period: Year ended 30 June 20XX

Ruling: Q1: Is Person A taken to have acquired Property 1 for its market value on DD/MM/YYYY pursuant to subsection 118-192(2) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: Person A purchased Property 1 in MM/YYYY for $X. Property 1 was her main residence from the date of settlement. On DD/MM/YYYY, Person A purchased Property 2. Person A moved into Property 2 following settlement in MM/YYYY. Once Person A moved into Property 2 it became her main residence (and Property 1 ceased to be her main residence). After Person A moved into Property 2, her son and his family resided in Property 1 until Property 1 was sold in MM/YYYY. No rental income was charged by Person A in respect of Property 1 during this period. Property 1 was not used for the purpose of producing assessable income throughout Person A's ownership period. Property 1 was sold for $X in MM/YYYY. A retrospective valuation of Property 1 was completed in MM/YYYY. The property valuation certificate stated that Property 1 was valued at $X as at DD/MM/YYYY.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-192 | Income Tax Assessment Act 1997 subsection 118-192(2)

Reasons for decision: Summary: If you start using your main residence to produce income for the first time after 20 August 1996, a special rule in section 118-192 of the ITAA 1997 affects the way you calculate your capital gain or capital loss from a CGT event that happens in relation to that main residence. This rule (under subsection 118-192(2) of the ITAA 1997) provides that you are taken to have acquired the dwelling at its market value at the time it was first used to produce income if all of the following conditions apply: • you acquired the dwelling on or after 20 September 1985; • you first used the dwelling to produce income after DD/MM/YYYY; • when a CGT event happens in relation to the dwelling, you would only get a partial exemption because the dwelling was used to produce income during the period you owned it (your ownership period); and • you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income. Person A does not meet the requirements in section 118-192 of the ITAA 1997, as she did not use Property 1 to produce income during her ownership period. Therefore, as the special rule in section 118-192 of the ITAA 1997 does not apply to Person A's circumstances, she is not taken to have acquired Property 1 for its market value on DD/MM/YYYY (or on any other date).