Private ruling: CGT- Main residence
Published: May 2012
Ruling period: 1 July 2011- 30 June 2012
Date scheme commenced: Some years ago

Ruling: Q1: Are you entitled to apply the partial main residence exemption under Subdivision 118-B of the Income Tax Assessment Act 1997 to the capital gain arising from the disposal of the apartment? | A1: Yes.


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 118-178

Reasons for decision: Summary: The legislative references referred to herein are from the Income Tax Assessment Act 1997 unless otherwise stated. | Detailed Reasoning - Issue:: You want to know whether you are entitled to the main residence exemption under Subdivision 118-B for the period you lived in your property. | Detailed Reasoning - Law:: Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event. The most common event is CGT event A1. CGT event A1 happens when you dispose of an asset to someone else. You are deemed to have disposed of an asset if a change in ownership occurs from you to another entity. | Detailed Reasoning - The main residence exemption: The main residence exemption is contained in Subdivision 118-B. A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if: · you are an individual · the dwelling was your main residence throughout your ownership period · the property was not used to produce assessable income, and · any land on which the dwelling is situated is not more than two hectares If you are not fully exempt you may be eligible for a partial exemption if: · the dwelling was your main residence during only part of the period you owned it · you used the dwelling to produce assessable income, or · the land on which the dwelling is situated is more than 2 hectares. If you own more than one dwelling during a particular period, only one of them can be your main residence at any one time. However, you cannot choose to treat a property as your main residence until you have first lived in it as your main residence. When you are only entitled to a partial exemption, you calculate how much capital gain is payable by using the following formula: Total capital gain made from the CGT event X Number of days in your ownership period when the dwelling was not your main residence ____________________________________ Total Number of days in your ownership period | Detailed Reasoning - Ownership period: For the purposes of the main residence exemption, you have an ownership interest in a dwelling or land you acquire under a contract from the time you get legal ownership (unless you have a right to occupy it at an earlier time). You have legal ownership of a dwelling or land from the date of settlement of the contract of purchase until the date of settlement of the contract of sale. | Detailed Reasoning - Timing of CGT event: If an asset is transferred under a contract, the CGT event happens when the contract is entered into. If there is no contract, the CGT event happens when the change of ownership of the asset occurs. | Detailed Reasoning - Marriage breakdown roll-over: Subdivision 126-A deals with marriage or relationship breakdowns. As a general rule, CGT applies to all changes of ownership of CGT assets occurring on or after 20 September 1985. However, if an asset is transferred to you as a result of a marriage breakdown, there are automatic CGT roll-over provisions in certain cases. If these roll-over provisions apply, the spouse transferring (transferor spouse) the asset disregards any capital gain or capital loss they make on the transfer. The spouse to whom the asset is transferred (the transferee spouse) makes the capital gain or capital loss when they eventually dispose of the asset. The cost base and other attributes of the asset are transferred to you. Under section 126-5 for marriage breakdown roll-over to the CGT event must have happened because of: · An order of a court or court order made by consent under the FLA 1975 · A financial agreement that is binding under section 90G of the FLA 1975 · Marriage breakdown and the main residence exemption Under the main residence provisions, subsection 118-178(2) states that your ownership interest had commenced when your former partner's ownership interest commenced (the acquisition time); and from the acquisition time until the time your former partner's ownership interest ended: · you had used the dwelling in the same way that your former partner used it; and · the dwelling had been your main residence for the same number of days as it was your former partner's main residence. | Detailed Reasoning - Application: Your ownership period starts when you begin to have a legal or equitable interest in the property. Therefore, your ownership period started when you purchased the property with your former partner. For CGT purposes you have two CGT assets, that is, two separate 50% ownership interests in the property. The first asset was the 50% ownership interest acquired originally and the second asset was your other 50% ownership interest acquired when your former partner transferred their half of the apartment to you. In relation to your original 50% ownership interest, you lived in the apartment as your main residence. You will be entitled to claim the main residence exemption from the time you started treating the apartment as your main residence until the time you stop treating it as your main residence. As you leased out the apartment before you started living in it you will only be entitled to a partial exemption. The exemption period will start when you moved into the property until you sell the property if it remains as your main residence up until this time. In relation to your later acquired 50% ownership interest, you satisfy the conditions for the marriage breakdown roll-over to apply as the CGT event happened because of consent orders made in the Family Court of Australia. This means that effectively both of your assets will have the same cost base. The cost base of your asset will be the price you and your former partner paid for the asset when you purchased it. You can apply the partial main residence exemption to this interest from the date your former partner transferred their ownership interest to you (prior to this, you must treat the interest as being used the way your former partner did). | Detailed Reasoning - Note: You can only treat one property at any time as your main residence; if you choose your current residence as your main residence for the purpose of the exemption you will not be able to apply the full main residence exemption to your interest in your prior residence.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You and your former partner had a residential property and jointly purchased an investment apartment several years ago. | You later separated with your former partner. You moved into the investment apartment. | You signed the child support agreement and consent orders and your former partner transferred their half interest in the investment apartment to you. | The consent orders were made under the Family Law Act 1975 . | You have used the apartment as your main residence since you moved in.