Private ruling: Capital gains tax - main residence
Published: April 2015
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a full main residence exemption upon the sale of the dwelling? | A1: Yes

Relevant facts and circumstances: You acquired an ownership interest in vacant land in late 200X. You and your partner were the joint owners of the land. You did not pay any consideration for your ownership interest in the Land. A dwelling was constructed on the land and was completed in mid 200Y. You and your partner moved into the dwelling immediately after the construction was completed and used it as your main residence. You vacated the dwelling in mid 200Z and the property was leased for the following periods: • tenant 1 - mid 200Z to mid 200V • tenant 2 - late 200V to mid 200W • tenant 3 - late 200W to mid 20XX The dwelling was made available for rent one week before it was rented to tenant 1. Immediately after the occupancy of tenant 1, the dwelling was left vacant for one week for cleaning prior to it being placed back on the market. Immediately after the occupancy of tenant 2, the dwelling was taken off the rental market as capital works were being undertaken. The property was not available for rent for approximately 95 days. Immediately after tenant 3, the dwelling was vacated and made ready for sale. The dwelling was sold on late 20XX. Both you and your partner have chosen to treat the dwelling as your main residence for the whole period from when you acquired your ownership interest in the land in late 200X.

Relevant legislative provisions: Income Tax Assessment Act 1997 s ection 118-110 | Income Tax Assessment Act 1997 s ection 118-145 | Income Tax Assessment Act 1997 section 118-150 | Income Tax Assessment Act 1997 section 118-185

Reasons for decision: Summary: Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling or your ownership interest in it, if you use the dwelling as your main residence. To qualify for a full exemption, the dwelling must have been your main residence for the whole period you owned it. You are entitled to a partial exemption if the dwelling was your main residence for only part of your ownership period (section 118-185 of the ITAA 1997). Further, section 118-150 of ITAA 1997 provides that where you: • acquired an ownership interest in land, and • then built a dwelling on the land, you may choose the dwelling to be your main residence from the time you acquired your ownership interest in the land, as long as the dwelling became your main residence as soon as practicable after the construction was finished, and it continued to be your main residence for at least three months. There is a time limit during which the choice can operate. This is the shorter of four years before the dwelling becomes your main residence, or the period starting from when you acquired your ownership interest in the land and ending when the dwelling becomes your main residence. Section 118-145 of the ITAA 1997 allows you to treat a dwelling (that was you main residence) as your main residence indefinitely, if you do not use it for the purpose of producing assessable income. However, if you do use it for that purpose, you can only treat the dwelling as your main residence for a maximum period of six years while you use it for that purpose. For any period(s) you choose to apply the main residence exemption, you cannot treat any other dwelling as your main residence for that period of time. In your case: • you acquired an ownership interest in vacant land; • you built a dwelling on the land; • you moved into the dwelling as soon as it was completed; • you lived in the dwelling until mid 200Y; • the dwelling was used for the purpose of producing assessable income from mid 200Y until mid 20XX; • The dwelling was not available for rent during a period of 95 days while capital works were being completed - mid to late 200Z. • the dwelling was sold in late 20XX; and • you have chosen to treat the dwelling as your main residence from the time you acquired your ownership interest in the land in late 200X. Please note that short periods between tenancies are considered part of the renting period, as merely leaving a property vacant for cleaning purposes to put it on the market again does not affect the fact that the property was still being used as a rental property. The 95 day period between mid to late 200Z, when the property was not available for rent due to capital works, will not be considered part of the rental period. From the above, it is evident that when taking into account the 95 days the property was not available for rent due to capital works being completed, the maximum six year rental period has not been exceeded. You are therefore entitled to the main residence exemption.