Private ruling: capital gains tax
Published: January 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a partial main residence exemption when you sell the property? | A1: Yes. | Q2: Are you deemed to have acquired your ownership interest in the property on the date it was first rented out? | A2: Yes.

Relevant facts and circumstances: You purchased a property (the property) in 2008. You moved into the property as soon as practicable and established it as your main residence. You moved out of the property in January 2010 and into other rented accommodation. You rented out the property from this time. You intend to sell the property in January 2018.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110. | Income Tax Assessment Act 1997 Section 118-135. | Income Tax Assessment Act 1997 Section 118-145. | Income Tax Assessment Act 1997 Section 118-185. | Income Tax Assessment Act 1997 Section 118-192.

Reasons for decision: Summary: You are entitled to a partial capital gains tax exemption. | Detailed Reasoning - Detailed reasoning: Under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997), you can disregard a capital gain or capital loss you make when you dispose of a dwelling that is your 'main residence', as long as: · the dwelling was your main residence for the whole period you owned it; and · your interest in the dwelling 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. A dwelling becomes your main residence as long as you occupy it at the time it is first practicable to do so after settlement for the purchase occurs (section 118-135 of the ITAA 1997). Period of absence Section 118-145 of the ITAA 1997 provides that you may continue to treat the dwelling as your main residence despite an absence from the dwelling. This only applies where no other dwelling is treated as your main residence during the period of absence. Where the dwelling is used to produce assessable income, the period of time you may treat it as your main residence is limited to a maximum of six years. The six year period commences when the dwelling is first used to produce assessable income and ends when the dwelling ceases to be used to derive income. Home first used to produce income rule Under section 118-192 of the ITAA 1997, if you start using your main residence to produce income, there is a special rule that affects the way you calculate your capital gain or capital loss. In working out the amount of capital gain or capital loss, the period before the dwelling is first used to produce income is not taken into account. You are taken to have acquired the dwelling at the time you first started using it for income producing purposes for its market value at that time if all of the following apply: · when a CGT event happens in relation to the dwelling, you would obtain only a partial exemption because the dwelling was used to produce assessable income during the period you owned it; and · you first used the dwelling to produce income after 20 August 1996; · you would have been entitled to a full exemption if the CGT event happened to the dwelling immediately before you first used it to produce income. In your case, you purchased the property in 2008. You moved into the property as soon as practicable and you lived there until 2010. You then lived in another property which you rented. You did not treat any other dwelling as your main residence during your period of absence. From 2010 the property was rented. As you first used the dwelling to produce assessable income after 20 August 1996, you are taken to have purchased the property in 2010 when it was first used for income producing purposes. You are entitled to a partial capital gains tax exemption. Calculating the partial exemption Section 118-185 of the ITAA 1997 states that where an individual taxpayer who acquires a dwelling is entitled to a partial exemption for a relevant CGT event that happens in relation to the dwelling if the dwelling was their main residence for only part of their ownership period. The capital gain or capital loss that is made is calculated as follows: CG or CL amount x Non-main residence days Days in the taxpayer's ownership period where: CG or CL amount is the capital gain or capital loss the taxpayer would have made from the CGT event apart from the main residence exemption; Non-main residence days is the number of days in the taxpayer's ownership period when the dwelling was not the taxpayer's main residence. In your case: · The 'days in taxpayer's ownership period' will be from the date the property was first rented (i.e. the date you are deemed to have acquired it) until the date you sell the property. · The 'non-main residence days' will be from the end of the 6 year absence period until the date you sell the property.