Private ruling: CGT - main residence
Published: July 2012
Ruling period: 1 July 2011 to 30 June 2012

Ruling: Question and Answer | 1. Are you entitled to a Capital Gains Tax, main residence exemption, under section 118-110 of the Income Tax Assessment Act 1997 ? | No. | 2. Are you entitled to a Capital Gains Tax, part main residence exemption, under section 118-185 of the Income Tax Assessment Act 1997 ? | Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Post 20 September 1985 you purchased a property which you always intended to live in as you main residence. You issued an eviction notice to the tenants of the property as soon as you purchased it. You were not well prior to the purchase of the property and became worse as time went by. You were diagnosed with an illness. You did not move into your property because you were encouraged to remain at home, supported by your family. Due to your illness; you suffered with the demands of your work, studies and everyday living. The decision was made to continue to rent out the property. Some months after the purchase of your property you were provided with an opportunity to work for your current employer overseas and where more treatment for your illness was available; this again prevented you from moving into the property. You would have returned sooner to live in the property but you met your spouse overseas and had a child. After numerous years overseas you moved back to Australia, the tenant moved out of the property and you moved in. From the time you bought the property you had no other property as your main residence. Approximately X years after returning from overseas you sold the property.

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 118-110 | Income Tax Assessment Act 1997 Section 118-185

Reasons for decision: Detailed Reasoning - Main Residence: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) discusses capital gains tax (CGT). A capital gain or capital loss can occur as a result of a CGT event. The most common CGT event is CGT event A1. Section 104-10 of the ITAA 1997 explains that this event occurs when you dispose of an asset to someone else, for example, when you sell your property and a there is a change of ownership for that asset. Under normal circumstances you can ignore a capital gain or a capital loss from a CGT event that happens to a dwelling that is your main residence for the entire period you owned it (section 118-110 of the ITAA 1997). In Taxation Determination TD 51, the Commissioner sets out factors to be considered when determining if a dwelling is a persons main residence and section 118-135 of the ITAA 1997 states that if a dwelling becomes your main residence by the time it was first practicable for you to move into it after acquiring your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence. | Detailed Reasoning - Dwelling not main residence for the entire period of ownership: Section 118-185 restricts the relief where a dwelling was not main residence for whole of your period of ownership. It operates on a time basis, i.e. the capital gain or capital loss is calculated on the basis of the number of days when the dwelling was not a main residence compared to the number of days of ownership of the dwelling. If a CGT event happens in relation to a dwelling that you acquired on or after 20 September 1985 and that dwelling was not your main residence for the whole time you owned it, you may only get a part exemption. The part of the capital gain that is taxable is calculated as follows: CG or CL amount x Non-main residence days Days in the ownership period where: Capital Gain (CG) or Capital Loss (CL) amount is the capital gain or capital loss a taxpayer would have made from the CGT event apart from this subdivision. That is the CG or CL calculated as if no main residence exemption was available. Non-main residence days are the number of days during which the residence was not your main residence in the ownership period. The adjusted capital gain or loss may be further adjusted if the dwelling was used to produce assessable income. | Detailed Reasoning - Application to your circumstances: Post 20 September 1985 you purchased a property with the intention that it would be your main residence. The property you purchased was tenanted, even though you issued an eviction notice to the tenants of the property as soon as you purchased it, if you could not move in because the dwelling was being rented to someone, you are not considered to have moved into the property as soon as practicable after you acquired your ownership interest. Some months after the purchase of the property, you were provided with an opportunity to work for your current employer overseas, which prevented you moving into the property. You were not directed by your employer to work overseas and you chose to stay overseas for a number of years, after which you then moved back to Australia with your spouse and child. Accordingly, from the time you purchased the property and for the period you were overseas the property was not your main residence. When you moved back to Australia, the tenants moved out of your property, you and your family moved in. It is considered you are entitled to a partial main residence exemption from the time you moved into the property after returning from living overseas to when you sold the property.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.