Private ruling: CGT - Main residence exemption
Date of advice: 23 May 2017
Published: September 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Will you be able to apply the main residence six year absence rule to dwelling A? | A1: Yes. | Q2: Will you be entitled to a full main residence exemption on disposal of dwelling A? | A2: No.

Relevant facts and circumstances: In 200X, you purchased your main residence (dwelling A). You resided in dwelling A until 201X when you moved overseas. The property was rented for a period of less than six years. In 201X you resided in dwelling A again. Later, you purchased another property with your spouse and immediately moved in. You have rented out dwelling A since then; it has been less six years. You are now in the process of selling dwelling A.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110, | Income Tax Assessment Act 1997 Section 118-145 and | Income Tax Assessment Act 1997 Section 118-170.

Reasons for decision: Summary: Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) states that you can disregard any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period. A capital gain or loss may only be partially disregarded if the dwelling was ● not your main residence throughout your entire ownership period, or ● used for the purpose of producing assessable income. Absence rule Section 118-145 of the ITAA 1997 provides that if a dwelling that was your main residence ceases to be your main residence, you can choose to treat that dwelling as your main residence for capital gains tax purposes, if: ● the dwelling is not used to produce income it can be treated as your main residence indefinitely, ● the dwelling is used to produce income the maximum period that you can choose to treat it as your main residence, while you use it for that purpose, is six years. If you make this choice, you cannot treat any other dwelling as your main residence while you apply this section. Subsection 118-145(2) of the ITAA 1997 specifically states that you are entitled to another maximum period of six years each time the dwelling again becomes and ceases to be your main residence. Spouses with different main residences Section 118-170 of the ITAA 1997 deals with circumstances in which a taxpayer and their spouse each have a dwelling as their main residence during a particular period of time. Applying the principle that only one dwelling at a time can qualify as a main residence, section 118-170 of the ITAA 1997 requires each spouse to: (a) choose one of the dwellings as the main residence for both of them; or (b) nominate different dwellings as each spouse's main residence. Where a nomination is made under paragraph (b), the availability of the main residence exemption, for each spouse individually, is determined according to the following rules: (a) where the spouse's interest in the nominated dwelling is 50% or less, that spouse will be entitled to an exemption on that interest for the whole period in question; and (b) where the relevant interest is greater than 50%, that spouse will only be entitled to an exemption in respect of that interest for half the period . Application to your circumstances In your case, the dwelling has not been rented for a consecutive period of more than six years. You will be eligible to apply section 118-145 of the ITAA 1997 to apply the absence rule. However, due to the application of section 118-170 of the ITAA 1997, you will not be entitled to a full main residence exemption as you and your spouse had different main residences at the same time. As your ownership interest in dwelling A is greater than 50%, you will be entitled to apply the main residence exemption for half the overlapping period, the period you and your spouse are claiming different main residences.