Private ruling: Main residence exemption
Published: November 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you able to claim a full main residence exemption on a dwelling that was tenanted when you acquired it? | A1: No. | Q2: Are you able to claim a partial main residence exemption on a dwelling that was tenanted when you acquired it? | A2: Yes.


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 118-185.

Reasons for decision: Summary: Generally, you can disregard a capital gain or capital loss made on the sale of a dwelling that is your main residence if: • you move into it as soon as practicable after you acquired it; • you have occupied the dwelling as your main residence throughout your ownership period; • the dwelling has not been used to produce assessable income; and • any land on which the dwelling is situated is 2 hectares or less. If you are not fully exempt, you may be partially exempt 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. | Detailed Reasoning - Moving into a dwelling as soon as practicable: As pointed out above, for the main residence exemption to apply for your whole ownership period, one of the requirements is that you must move into the dwelling as soon as practicable after you purchase the dwelling. The main residence exemption may be extended to take account of the time it takes you to move into the dwelling. It includes the period from when you acquired the main residence to when it was first practicable to move into the dwelling after it was acquired. However, the Explanatory Memorandum to the Bill which became the Tax Law Improvement Act (No.1) 1998 specifically states that the main residence exemption is not extended to the situation where you are unable to move into the dwelling because it is being rented out. However, it would cover a period after the end of the tenancy if the owner could not take up residence immediately because of the nature of repairs required to the dwelling. In your case, you purchased a dwelling with an existing tenant. The tenant will not vacate until you get council approval to undertake renovations, after which time you will move into the dwelling. Based on the Explanatory Memorandum, it is considered that you did not occupy the dwelling when it was first practicable to do so. ATO Interpretative Decision ATO ID 2001/744 Income tax: Capital gains tax: moving into a dwelling supports this approach. Therefore, no exemption is available for the period that the property was rented and you will not be eligible for a full main residence exemption when the property is disposed of in the future. However you will be entitled to a partial exemption. Further details on the partial exemption can be found in our publication Guide to capital gains tax 2014 (NAT 4151), which is available from our website www.ato.gov.au

Relevant facts: You have purchased a home. | There was a tenant in place when you purchased the property. | You agreed to leave the tenant in place until you get council approval to do renovations to the property. | Once you have council approval, the tenant will move out and once the renovations are completed, you will move into the property. | You expect any renovations to be completed within one or two months of commencement.