Private ruling: Capital gains tax - main residence - partial exemption
Published: November 2013
Ruling period: 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a partial main residence exemption on the disposal of your main residence. | A1: 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. Approximately X years ago you and your spouse were living in large coastal city when you decided on a career change. You applied for and were accepted into a state university to undertake a degree. Your studies were due to begin early in the year after you applied to the university. You and your spouse decide to purchase a dwelling before you left so you had somewhere to move back into upon your return. You and your spouse jointly purchased a property. The property was tenanted at the time of purchase. Settlement occurred shortly after signing the contract. Due to the following factors you and your spouse made the decision to defer your studies for a specified period: · the stress you and your spouse suffered after your child was born a number of years prior with a medical condition · your spouse's parent had passed away recently and they felt the need to support their surviving parent, who was living in another state · you had also just completed studying a specified course as a pre-requisite for your university degree. This course was completed whilst working fulltime. All things considered you were quite burnt out. You and your spouse lived with your spouse's parent for a specified period. During this period your spouse managed to get their parent back on their feet and gain some independence. Approximately Y years ago you and your spouse returned to your home state and moved into the property and established it as your main residence so that you could undertake your studies at the university. You and your spouse continued live in the property for approximately Z years when your employer offered you permanency if you transferred to another location. You and your spouse moved out of the property as the offer of permanency was too good to refuse. The property was rented out and was tenanted after you and your spouse moved out. You and your spouse felt that you would one day return to live in the property again. In the following years you and your spouse separated and divorced. The property was disposed of. You have elected to continue to treat your interest in the property as your main residence for your entire ownership period. Recently you received an oral ruling in relation to the above arrangement

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 118-110. | Income Tax Assessment Act 1997 Section 118-145. | Income Tax Assessment Act 1997 Section 118-185.

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. The most common capital gains tax (CGT) event, CGT event A1, occurs when you dispose of an asset or interest in an asset to another entity. CGT event A1 occurred when you disposed of your interest in the property. | Detailed Reasoning - Joint tenants: For CGT purposes, individuals who own an asset as joint tenants are each treated as if they own an equal interest in the asset. Each joint tenant makes a capital gain or capital loss from an event in line with their interest in the asset. Therefore, you and your spouse had a 50% interest in the property. | Detailed Reasoning - Main residence exemption: Generally, you can disregard a capital gain or capital loss made on the disposal of a dwelling that is your main residence if: · the dwelling was your home for the whole period you owned it; · the dwelling was not used to produce assessable income; and · any land on which the dwelling is situated is not more than two hectares. A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you move into it as soon as practicable after that date. This would generally be the date of settlement of the purchase contract. If you could not move in because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest. | Detailed Reasoning - Continuing main residence status after dwelling ceases to be your main residence: In some cases you can choose to have a dwelling treated as your main residence even though you no longer live in it. You can only make this choice for a dwelling that you have first occupied as your main residence. If you do not use the dwelling to produce income, you can treat the dwelling as your main residence for an unlimited period after you cease living in it. Where you use the dwelling to produce income, you can choose to treat it as your main residence while you use it for that purpose for up to six years after you cease living in it. You are entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, your main residence. If you make this choice, you cannot treat any other dwelling as your main residence for that period. | Detailed Reasoning - Partial main residence exemption: Although you are not eligible for the full main residence exemption you are eligible for a partial exemption. The partial main residence exemption will apply for the period from when you and your spouse moved into the property until it ceased to be your main residence. Approximately Y years ago you and your spouse moved into the dwelling and established this dwelling as your main residence, and you have elected to treat the property as your main residence until its disposal. The following formula that is used to calculate your capital gain or capital loss takes into account both the days the property was not your main residence, and the total number of days in your ownership period. Total capital gain made from X number of days in your ownership period the CGT event when the dwelling was not your main residence total number of days in your ownership period Your number of days in your ownership period when the dwelling was not your main residence is from the acquisition date until the date you and your spouse moved into the property and commenced treating it as your main residence. Your total days in your ownership period are from the acquisition date until you disposed of your interest in the dwelling. You can use the discount method to calculate your capital gain as you meet all the relevant criteria. The discount percentage is 50% for individuals.