Private ruling: Capital gains tax
Date of advice: 8 April 2025
Published: 23 June 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: X XX 20XX

Ruling: Q1: Are you entitled to a full main residence exemption from CGT upon disposal of property A? | A1: No. | Q2: Are you entitled to a partial main residence exemption from CGT upon disposal of property A? | A2: Yes. | Q3: Are you entitled to make an absence choice upon disposal of property A? | A3: Yes.

Relevant facts and circumstances: On X XX 19XX, you purchased property A. Property A was rented out from XX X 19XX to XX X 20XX. You did not establish property A as your main residence prior to renting on X XX 19XX. From XX X 20XX to XX X 20XX, you resided at property A. From XX X 20XX, you vacated property A. You purchased property B and began residing there, while choosing to continue to treat property A as your main residence under the 'absence choice'. Property A was unoccupied. You moved back into property A and will continue to reside there indefinitely. Property B was sold. You want to make property A your main residence for CGT purposes. You want to pay the CGT on the disposal of property B.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-B | Income Tax Assessment Act 1997 section 118-110 | 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 treat property A as your main residence and use the absence choice for the period of absence, under section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Capital gains tax: All assets you've acquired since capital gains tax (CGT) started (on 20 September 1985) are subject to capital gains tax unless specifically excluded. A capital gain or capital loss is made when a CGT event happens to a CGT asset you own. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else. A capital gain is made if the amount received (called capital proceeds) from the disposal exceeds the cost base (the cost of the asset and certain other costs associated with acquiring, holding and disposing of the asset) of the CGT asset. Your net capital gain is the total of your capital gains for the income year, reduced by any capital losses that you have made. | Detailed Reasoning - Main residence exemption: Generally, you disregard a capital gain made on the disposal of a dwelling that is your main residence if the dwelling was your home for the whole period, you owned it, the dwelling was not used to produce assessable income, and any land on which the dwelling is situated is not more than 2 hectares. Section 118-145 of the ITAA 1997 provides the absences rule that if a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence. However, as property A was used to earn assessable income for a continuous period from XX 19XX to 20XX, it will not be fully exempt under main residence exemption. You will not be eligible for a full main residence exemption on the disposal of property A. | Detailed Reasoning - Partial main residence exemption: If a CGT event happens to a dwelling you acquired on or after 20 September 1985 and that dwelling was not your main residence for the whole time you owned it, you will only be eligible for a partial exemption on the disposal of the dwelling. When calculating the cost base for a main residence, section 118-192 of the ITAA 1997 holds a special rule that applies if: • you would only get a partial main residence exemption for a CGT event happening in relation to your ownership interest in a dwelling because the dwelling was used for the purpose of producing assessable income during your ownership period; and • the use occurred for the first time after 7:30pm, by legal time in the Australian Capital Territory, on 20 August 1996; and • you would have had a full main residence exemption if the CGT event had happened just before the first time it was used for income producing purposes during your ownership period. When the above requirements are met, you are taken to have acquired the dwelling at its market value just before the time it was first used to produce income. This impacts on the first element of your cost base or reduced cost base calculation. However, as the property was first used to produce income prior to 7:30pm, by legal time in the Australian Capital Territory, on 20 August 1996, the special rule will not apply. In that situation, the capital gain is calculated using the following formula: Capital gain x Non main residence days / Days in your ownership period As property A was not your main residence from X XX 19XX to X XX 20XX, you are only eligible for a partial main residence exemption on disposal of the dwelling under subdivision 118-B for those days you chose and were eligible to treat your property as your main residence. | Detailed Reasoning - Absence choice: Section 118-145 of the ITAA 1997 provides that once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence during periods of absence. When the dwelling is left vacant, you may continue to treat the dwelling as your main residence for an indefinite period. When you choose to do this, you are making an absence choice. The main residence provisions are extended to cover those taxpayers who leave their main residence but choose to continue to treat it as their main residence even if it is rented out, provided certain conditions are met. If a dwelling ceases to be a taxpayer's main residence, and they use the dwelling to produce assessable income, they can choose to treat the dwelling as their main residence for up to six years after they ceased living in it. If you do not use it to produce income (for example, you leave it vacant or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you stop living in it. This is known as an absence choice. This choice can be made each time a taxpayer moves out of their main residence and commences renting out the dwelling. If you make this choice, you cannot treat any other dwelling as your main residence for that period. If the full exemption applies your capital gain or loss is disregarded - you don't pay tax on any capital gain, but nor can you use any capital loss to reduce your assessable income. Alternatively, you may be entitled to a partial exemption. | Detailed Reasoning - Application to your situation: In your case, a CGT event occurred when you sold the dwelling at property B. As property A has not been your main residence for the whole of your ownership period, you will only be entitled to a partial main residence exemption from when you started living at property A on XX X 20XX, which will be calculated using the formula provided above upon disposal of the property. Although you lived at property B from X XX 20XX to X XX 20XX, you can treat property A as your main residence during this period using the absence choice because it was not used to produce income for that period. In making this choice, you are opting to pay the capital gains tax on the disposal of property B.