Private ruling: CGT and Main residence exemption
Published: May 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Questions and answers: | Are you entitled to the full main residence exemption from capital gains tax on the disposal of your property? | No. | Are you entitled to a partial main residence exemption from capital gains tax on the disposal of your property? | Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You purchased a dwelling post 1985. The dwelling had a pre-existing lease on it and tenants occupying the property. You moved into the dwelling after the lease expired. You lived in the dwelling until you moved in with your partner. Your partner owns their house and does not want to choose your unit as their main residence. The dwelling has been continually leased from when you moved out. The property is on the market now and you expect that it will sell soon.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | 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: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Reasons for decision: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or loss happens only as a result of a capital gains tax (CGT) event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else. CGT assets include real estate acquired on or after 20 September 1985. Section 118-110 of the ITAA 1997 provides that you can disregard any capital gain or capital loss on the disposal of a dwelling that was your main residence for your entire ownership period. | Detailed Reasoning - Full main residence exemption from CGT: For the main residence exemption to apply to your whole ownership period, you must move into the dwelling as soon as practicable after you purchase the dwelling (section 118-135 of the ITAA 1997). Section 118-135 of the ITAA 1997 extends the main residence exemption to take account of the time needed to move into a dwelling. It includes the period from when you acquired the main residence (generally the date of settlement) to when it was first practicable to move into the dwelling after it was acquired. This is to take account of situations where, for example, there is a delay in moving because of illness or other similar cause beyond your control. In your case, you did not move into a property you purchased as soon as practicable after the date of its acquisition because tenants were occupying the property until their lease expired. As this is not considered to be a situation beyond your control, you did not occupy the dwelling when it was first practicable to do so. Accordingly, you are not entitled to a full main residence exemption from CGT. | Detailed Reasoning - Partial main residence exemption from CGT: Section 118-185 of the ITAA 1997 provides that you are entitled to a partial exemption from CGT where a dwelling was your main residence for part of your ownership period. Subsection 118-185(2) of the ITAA 1997 provides a formula which allows you to adjust the capital gain or capital loss amount calculated on disposal of the property to take into account the proportion of your main residence days in the property to the total number of ownership period days of the property. | Detailed Reasoning - Treating the property as your main residence once you move out: As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for CGT purposes even though you no longer live in it. When you use the dwelling to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you cease living in it. If you make this choice and treat your property as your main residence, you cannot treat any other dwelling as your main residence for that period. | Detailed Reasoning - Moving in with your partner: Moving in with your partner may also affect your main residence exemption, despite the fact you do not have an ownership interest in the property that you are sharing with your partner. If you are living in a de facto relationship with your partner, they are considered to be your spouse as the legislation surrounding CGT defines a spouse as another person (of the same or opposite sex): · to whom you are legally married, or · with whom you are in a relationship that is registered under a prescribed state or territory law, or · with whom you live on a genuine domestic basis as a couple. If you decide to treat your dwelling as your main residence once you have moved out of it (and moved in with your partner), you cannot also treat your spouse's house as your main residence for that period of time. For this period of time you must: · choose one of the homes as the main residence for both of you for the period, or · nominate the different homes as your main residences for the period. If you nominate different homes for the period and you own 50% or less of the home you have nominated, you qualify for an exemption for your share. If you own more than 50%, your share is exempt for half the period you and your spouse had different homes. This rule applies to each home spouses own, whether they have sole ownership or own the home jointly (either as joint tenants or tenants in common). | Detailed Reasoning - Application to you: As you did not move into the property as soon as practicable due to an existing lease on the property you are not entitled to a full main residence exemption, however you are entitled to a partial exemption equal to the portion of your ownership period that the property was your main residence. For the period after you moved out of the property (and whilst it is being rented out for up to 6 years) you need to either treat your dwelling as your main residence or your partners dwelling as your main residence. If you choose to treat your dwelling as your main residence whilst you lived with your spouse then your main residence exemption will be calculated as follows: Total Capital Gain x Number of days the dwelling was your main residence Total number of days you owned the property Note: Formula to determine your number of main residence days: · number of days dwelling is your main residence equals · number of days from when you moved in to the property until you moved in with your spouse plus · number of days from when you moved in with your partner until the dwelling was sold divided by 2 (provided it is not rented out for more than 6 years).

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.