Private ruling: main residence
Published: February 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to disregard any capital gain made on the sale of your remaining interest in the property? | A1: Yes.

Relevant facts and circumstances: You and your ex-spouse purchased a property after 1985. The property became your main residence. You and your ex-spouse divorced and as a result of a court order the property was to be transferred to you. In 2007 the title was transferred into your name. The property continued to be your main residence until a point in time. The property was rented as a holiday home for a few months. You moved back in after this period. The property has been used to produce some rental income from this date however from 2012, you and your child moved back into the home and it became your main residence. You have not treated any other property as your main residence during this period. Your child purchased an interest in the property. The property has not been used to produce rental income from 2012 and you have no intention of renting it in the future. You intend to sell your remaining interest in the property to your child.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-145(1)

Reasons for decision: Summary: A capital gain or loss you make from a capital gains tax (CGT) event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if: a) you are an individual; and b) the dwelling was your main residence throughout your ownership period; and c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for CGT purposes even though you no longer live in it. | Detailed Reasoning - Absences: Under subsection 118-145(1) of the ITAA 1997, if a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence. If you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under section 118-145 of the ITAA 1997 is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence. | Detailed Reasoning - Example:: You live in a house for 3 years. You are posted overseas for 5 years and you rent it out during your absence. On your return you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house. You have not treated any other dwelling as your main residence during your absences. You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years. You can make this choice when preparing your income tax return for the income year in which you sold the house. | Detailed Reasoning - Application to your circumstances: In this case you held two separate interests in the property. The property was your main residence until a point in time. From this date until 2012 there were periods where the property was available for rent. From 2012 the property has become your main residence and you do not intend to rent it out again prior to its sale. Under subsection 118-145(1) of the ITAA 1997, you may choose to continue to treat the property as your main residence for a maximum period of 6 years. You have had several absences from the property but each has been less than 6 years. Therefore, you are entitled to a full main residence exemption and can disregard any capital gain made on the sale of the property.