Private ruling: Main residence exemption
Published: February 2015
Ruling period: Income year ended 30 June 2015
Date scheme commenced: 4 August 2013

Ruling: Q1: Will the entire capital gain be disregarded on the sale of the property under the main residence exemption? | A1: Yes

Relevant facts and circumstances: You purchased a property on the X. The property was previously owned by your parents. You resided in the property until the X. The property has been rented out since X. Since you have acquired the property you have not treated another property as your main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-145 | Income Tax Assessment Act 1997 section 118-185 | Income Tax Assessment Act 1997 section 118-190

Reasons for decision: Summary: Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence (section 118-110 of the ITAA 1997). In order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it (section 118-110 and 118-185 of the ITAA 1997), must not have been used to produce assessable income (section 118-190 of the ITAA 1997) and any land on which the dwelling is situated should not be more than two hectares. However section 118-145 of the ITAA 1997 provides that you can continue to treat a dwelling as your main residence during periods of absence. If the dwelling is not used to produce income it can be treated as your main residence indefinitely (subsection 118-145(3) of the ITAA 1997). If the dwelling is used to produce income the maximum period that you can choose to treat it as your main residence, while you use it for that purpose, is six years (subsection 118-145(2) of the ITAA 1997). You are entitled to another period of six years each time the dwelling again becomes your main residence and then commence using it again to produce income. If you make this choice, you cannot treat any other dwelling as your main residence while you apply this section. If you own more than one dwelling, only one of them can be your main residence at any one time. Consequently as long as you have not treated another property as your main residence and the period of absence does not exceed six years the entire capital gain on the sale of the property will be disregarded.