Private ruling: Capital gains tax
Date of advice: 8 May 2026
Published: 13 July 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the first element of the cost base or reduced cost base of your individual ownership interest in the Property be its market value on the date you became an Australian resident for taxation purposes? | A1: Yes. | Q2: Are you eligible for a full main residence exemption on the disposal of your individual ownership interest in the Property? | A2: No. | Q3: Are you eligible for a partial main residence exemption on the disposal of your individual ownership interest the Property? | A3: Yes.

Relevant facts and circumstances: You, being Person A and Person B collectively, met and became engaged while you were overseas. Person A is an Australian citizen who was born in Australia and Person B was born in Country X. After 20 September 1985 you jointly purchased the property located in Country X (the Property) that you moved into when settlement occurred. Prices for property in Country X were high at the time the Property was purchased and you had obtained a loan to purchase the Property. You were both employed in the same profession and were offered jobs in Australia. However, the value of the Property had fallen, and you would have been required to surrender the Property to the bank as a result of the negative equity if you had accepted the Australian positions. You made the decision to remain overseas to pay off the mortgage as quickly as possible to enable you to relocate to Australia without defaulting on the loan. After some years of living at the Property you moved to Country X and the Property was rented out. You were not in a position to sell the Property when you had left without crystalising a significant loss and you continued renting the Property to long-term tenants. You treated the Property as an ongoing investment, meeting the taxation and reporting requirements in both Australia and overseas in relation to the Property. After several years an offer of employment was made to Person A and you emigrated to Australia and became residents of Australia for taxation purposes, living and establishing your home here. It is estimated that the market value of the Property when you became Australian residents was less than the amount originally paid to acquire the Property. Several months after you came to Australia you jointly purchased a property (the Australian Property) where you have lived since settlement on its purchase occurred. After some years Person B became a citizen of Australia. You made the decision to sell the Property which had continued to be rented until then. During the ruling period a contract for the sale of the Property was entered into, with settlement occurring some weeks later. The sale price of the Property is estimated to be more than the market value of the Property when you became Australian residents. You will make the absence choice in relation to the Property for the period on and from when you have moved out of it up to an including the day prior to the settlement date on the purchase of the Australian Property when you lodge income tax return for the ruling period.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-125 | Income Tax Assessment Act 1997 section 118-130 | Income Tax Assessment Act 1997 section 118-135 | Income Tax Assessment Act 1997 section 118-140 | Income Tax Assessment Act 1997 section 118-145 | Income Tax Assessment Act 1997 section 118-185 | Income Tax Assessment Act 1997 section 855-45

Reasons for decision: Detailed Reasoning - Question 1:: Will the first element of the cost base or reduced cost base of your individual ownership interest in the Property be its market value on the date you became an Australian resident for taxation purposes? | Summary: The first element of the cost base or reduced cost base of your individual ownership interest in the Property will be the market value on the date you arrived in Australia when you became a resident of Australia for taxation purposes. | Detailed Reasoning - Capital gains tax and becoming a resident of Australia: Capital gains tax (CGT) is the tax you pay on certain capital gains you make. You make a capital gain or a capital loss when a 'CGT event' happens under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)). Property is a CGT asset under section 108-5 of the ITAA 1997. The most common CGT event A1 happens when you dispose of the asset to another party, such as when you dispose/sell your ownership interest in a property under section 104-10 of the ITAA 1997. The time of the CGT event A1 is: • when you enter into the contract for the disposal; or • if there is no contract, when the change of ownership occurs. For most CGT events, your capital gain is the difference between the capital proceeds and the cost base of your CGT asset. A capital loss is the difference between the capital proceeds and the reduced cost base of your CGT asset. However, special cost base and acquisition rules apply in respect of each CGT asset owned by you just before becoming a resident of Australia for taxation purposes under section 855-45 of the ITAA 1997. If you become an Australian resident there are rules that apply to each CGT asset you owned just before you became an Australian resident (except an asset that is taxable Australian property or an asset that was acquired before 20 September 1985) under subsection 855-45(1) of the ITAA 1997. The first element of the cost base and reduced cost base of the asset at the time of becoming an Australian resident is its market value at that time under subsection 855-45(2) of the ITAA 1997. The CGT provisions contained in in Parts 3-1 and 3-3 of the ITAA 1997 apply to the asset as if you had acquired it at the time you became an Australian resident under subsection 855-45(3) of the ITAA 1997. | Detailed Reasoning - Application to your situation: You acquired your individual ownership interests in the Property while both of you were non-residents of Australia. You came to Australia when you both became Australian residents for taxation purposes from that date. For CGT purposes, you are viewed as having acquired your respective ownership interest in the Property on the date you became an Australia resident for its market value on that date. The market value amount will be the first element of the cost base of your ownership interest in the Property that is used when any CGT event occurred to the Property, such as when it was sold. It is stated that you will make a capital gain in relation to the disposal of your individual ownership interests in the Property if you are required to use the market value of your interest when you became an Australian resident in the CGT calculation on the sale of the Property. While we appreciate your situation in relation to the market value of the Property when you became Australian residents being less than the amount originally paid to acquire the Property, there is no legislative provision/s that would allow you to use your share of the purchase price of the Property instead of using the market value of your ownership interest in the Property when you became an Australian resident as the first element of the cost base. Therefore, the first element of the cost base of your individual ownership interest in the Property will be its market value at the time you became an Australian resident. | Detailed Reasoning - Question 2:: Are you eligible for a full main residence exemption on the disposal of your individual ownership interest in the Property? | Detailed Reasoning - Question 3:: Are you eligible for a partial main residence exemption on the disposal of your individual ownership interest the Property? | Summary: You are not entitled to a full main residence exemption in relation to the disposal of your individual ownership interest in the Property as it was not your main residence for all of your ownership period. Therefore, you cannot fully disregard any capital gain made in relation to the disposal of your ownership interest in the Property. However, any capital gain made in relation to the disposal of your individual ownership interest in the Property will be calculated to take into consideration your main residence days during your ownership period entitling you to a partial main residence exemption. | Detailed Reasoning - Full main residence exemption: A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded under section 118-10 of the ITAA 1997 if you are an individual and: • the dwelling was your main residence throughout your ownership period; and • the property was not used to produce assessable income. A dwelling will be viewed as your main residence from the time you acquired your ownership interest in it if you moved into it as soon as practicable after that time under section 118-135 of the ITAA 1997, such as the date the dwelling was put into your name. If you do not move into a dwelling as soon as practicable after you obtain your ownership interest in it, the main residence days in relation to your ownership period will not start until you move into the dwelling, and you will only be entitled to a partial main residence exemption. For the purposes of the main residence exemption, you have an ownership interest in a dwelling you acquire under a contract from the time you get legal ownership under section 118-130 of the ITAA 1997. You have legal ownership of a dwelling from the date of settlement of the contract to purchase, or if you have a right to occupy it from it an earlier time from that time, until the date of settlement of the contract of sale. This is known as the ownership period. ATO Interpretative Decision ATO ID 2010/101 (Withdrawn) Income Tax Capital Gains Tax: main residence exemption - interaction with non-resident provisions states that for the purposes of the main residence exemption, the ownership period of a dwelling located in a foreign country includes the period that it was owned by a taxpayer prior to the taxpayer becoming an Australian resident. This is the case even though for acquisition purposes the foreign resident provisions in Division 855 of the ITAA 1997 provide that the taxpayer is considered to have acquired the dwelling for its market value at the time of becoming a resident. While this ATO ID has been withdrawn, the information contained in it can still be relied upon. If you own more than one dwelling during a particular period, only one of them can be your main residence at any one time. The exception to this is if you acquire a new home before you dispose of your old one, then both dwellings are treated as your main residence if the conditions in subsection 118-140(1) of the ITAA 1997 are met for the shorter of: • six months ending when your ownership interest in your existing main residence ends; or • the period between the acquisition of the new ownership interest and the time when the ownership interest referred to above ends. The conditions for the changing main residence exception to apply are provided in subsection 118-140(2) of the ITAA 1997 include: • that your old dwelling was your main residence for a continuous period of at least three months in the 12 months before you dispose of it • you did not use the old dwelling to produce assessable income in any part of that 12 months when it was not your main residence; and • the new dwelling becomes your main resident. | Detailed Reasoning - Extension to the main residence exemption: The main residence days during your ownership period are taken into consideration when determining your eligibility to any main residence exemption. In some cases, you can choose to treat a dwelling as your main residence even though you no longer live in it under section 118-145 of the ITAA 1997, known as the absence choice. If you use the dwelling that was your main residence to earn assessable income, such as rental income, you can make the choice to treat it as your main residence for up to six years after you stop living in it under subsection 118-145(2) of the ITAA 1997. Taxation Determination TD 95/7 Income tax: capital gains: does subsection 855-45(3) of the Income Tax Assessment Act 1997 prevent a taxpayer from making a choice that section 118-145 of that Act apply to an overseas dwelling that the taxpayer owned before becoming a resident of Australia? outlines that you can make an absence choice in relation to a main residence that you owned before becoming a resident of Australia, subject to the requirements of section 118-145 of the ITAA 1997 being met. The following example is provided in TD 95/7: In July 2007, Sarah, a UK resident, moved permanently to Australia. She was unable to sell her UK home (which she had bought in 1987) before her departure. As a result, Sarah decided to rent the property. She did not purchase a dwelling in Australia. In April 2008, her tenant made an offer to purchase the UK property. Sarah accepted the offer and settlement took place the following month. In preparing her 2007-08 income tax return, Sarah made a choice that section 118-145 apply for the period she was absent from her UK dwelling. The effect of making the choice is that the capital gain or loss made from the sale of her UK property is disregarded in calculating Sarah's net capital gain or loss for the year. If you make the choice subsection 118-145(4) of the ITAA 1997 states that you cannot treat any other dwelling as your main residence for the period the choice is made, with the exception of when you are changing main residence under section 118-140 of the ITAA 1997, as discussed above. | Detailed Reasoning - Partial main residence exemption: If a CGT event happens to a dwelling you acquired on or after 20 September 1985 and that dwelling was not your main residence for the whole time you owned it, you are entitled to a partial exemption under section 118-185 of the ITAA 1997. ATO ID 2010/101 provides that the following formula is used to calculate a partial main residence exemption under section 118-184 of the ITAA 1997 when a taxpayer disposes of a dwelling that was their main residence prior to them becoming and they are not eligible for full main residence exemption: Accordingly, a taxpayer, who after becoming a resident of Australia disposes of a dwelling that was their main residence before they became a resident, can claim a partial main residence exemption: Capital gain × (Days in the ownership period that the dwelling was your main residence ÷ Total days in your ownership period) Capital gain is the difference between your capital proceeds (sale proceeds) and the cost base of the dwelling. You make a capital gain if the capital proceeds are more than the cost base of the asset. Note: the capital gain is calculated using the MV acquisition cost amount when becoming an Australian resident as the first element of the cost base (as discussed above). Main residence days are the number of days in your ownership period when the dwelling was your main residence, which includes the days you lived there and those days covered by any choice, such as the absence choice. Total number of days in your ownership period are the days from when you obtained your ownership interest in the dwelling until your ownership interest in the dwelling ends. That is from when settlement on the dwelling's purchase occurred until settlement on its sale occurred. | Detailed Reasoning - Application to your situation: You jointly purchased the Property that you lived in for several years from when settlement on its purchase had occurred until you moved to Country, before migrating to Australia when you became Australian residents for taxation purposes. Some months after you arrived in Australia you jointly purchased the Australia Property. For CGT purposes there was an overlap of ownership periods for the Property and the Queensland Property from when settlement on the purchase of the Australian Property occurred until settlement on the sale of the Property some years later. As outlined above, if you own two dwellings during the same period only one of them can be your main residence at any one time. The exception to this is when the conditions for changing main residences in section 118-140 of the ITAA 1997 are met. In this case you do not meet the conditions contained in section 118-140 of the ITAA 1997 to be able to treat both the Property and the Australian Property as your main residence for a six-month period as you had not lived in the Property for at least three months in the 12 months prior to it being sold. Also, you had used the Property to earn rental income. You will make the absence choice when lodging your individual income tax returns for the ruling period, which will cover the period of some years from when you moved out of the Property up to and including the day prior to settlement occurring on the purchase of the Australian Property. The ownership period of your individual ownership interest in the Property is on and from the date settlement on the purchase of the Property occurred up to and including the day settlement on the sale of the Property occurred. While you lived in the Property for part of your ownership period and will make the absence choice for the period from when you moved out of it up to including the date prior to settlement occurring on the purchase of the Australian Property, you do not have main residence days for all of your ownership period. You have non-main residence days on and from the date settlement on the purchase of the Australian Property occurred up to and including the date on which settlement on the sale of the Property occurred. Therefore, as the Property was not your main residence for all of your individual ownership period, you will not be entitled to a full main residence exemption. However, you will be entitled to a partial main residence exemption in relation to the disposal of your individual ownership interest of the Property calculated on the main residence days during your ownership period. Note: you will be entitled to reduce any capital gain made on the disposal of your individual ownership interest in the Property by the 50% CGT discount as you meet the conditions contained in Division 115 of the ITAA 1997: