Private ruling: CGT - main residence exemption
Date of advice: 24 March 2017
Published: May 2017
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim the capital gains main residence exemption for your property after it was destroyed accidentally? | A1: Yes.

Relevant facts and circumstances: You purchased the Property in 199X. You lived in the property and treated it as your main residence from the time you moved in until 20XX. In 20XX, you left the country. The property was rented to different tenants for the period from 20XX to 20XX. The Property was destroyed in an accidental house fire in 20XX. You did not own another property from 20XX to 20XX. You signed a contract for an off the plan investment property development on 20XX. Settlement occurred on this property in 20XX. You returned to Australia 20XX and moved into the investment property in 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 118B | Income Tax Assessment Act 1997 Section 118-100 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Section 118-160.

Reasons for decision: Detailed Reasoning - When a dwelling becomes your main residence: Subdivision 118B of the Income Tax Assessment Act 1997 ( ITAA 1997) provides that a capital gain or capital loss you make from a capital gains tax (CGT) event that happens to a dwelling that is your main residence, can be ignored. Section 118-100 of the ITAA 1997 provides that this exemption does not apply in full if: ● It was your main residence during part only of your ownership period; or ● It was used for the purpose of producing assessable income. | Detailed Reasoning - Absence rule: Section 118-145 of the ITAA1997 provides that if a dwelling was your main residence, you may continue to treat it as your main residence. If you use your main residence to produce assessable income, the maximum that you can treat it as your main residence is six years. The six years will restart if you have moved back into the dwelling and then moved back out again. If you make the choice to treat the dwelling as your main residence whilst you are absent, you may not treat any other dwellings as your main residence whilst you choose to use the absence exemption in section 118-145 of the ITAA 1997. In your circumstances, the Property was your main residence until 20XX when it was first used to produce assessable income. The period from 20XX, until the dwelling on the Property was destroyed by fire in 20XX was less than the maximum 6 years allowable under the legislation. Under section 118-145 of the ITAA 1997, the Property can be treated as your main residence during the period of your absence. | Detailed Reasoning - Destruction of Dwelling: Section 118-160 of the ITAA 1997 applies if a dwelling was your main residence, was accidentally destroyed; and a CGT event happens in relation to the land on which was built without you erecting another dwelling. If the section applies, then you are able to apply the main residence exemption to the vacant land until your ownership interest in the land ends. Paragraph 118-160(3) of the ITAA 1997 provides that you may not treat another dwelling as your main residence during that period, except where you are changing main residences (as per section 118-140 of the ITAA 1997) In your circumstances, the Property was your main residence up until the date that it was destroyed by accident in a house fire in 20XX, owing to the absence rule as detailed above. While the Property remains as vacant land you meet the conditions found in section 118-160 of the ITAA 1997, and are entitled to choose to apply the main residence exemption to the Property, until your ownership interest in the land ends.