Private ruling: Capital gains tax- main residence exemption
Date of advice: 21 September 2016
Published: November 2016
Ruling period: Income year ended 30 June 20YV
Date scheme commenced: 1 July 20YZ

Ruling: Q1: Are you entitled to a main residence exemption from the settlement date of purchase until you established the dwelling as your main residence? | A1: No | Q2: Are you entitled to a partial main residence exemption from the time you established the dwelling as your main residence until you stopped treating the property as your main residence and moved into another property? | A2: Yes

Relevant facts and circumstances: You purchased a dwelling after 20 September 1985. At the time of purchase, the dwelling was occupied by a tenant. You requested that the tenant vacate the dwelling after you acquired your interest in the property, but you took no legal action to enforce this request. You were in dispute with the property's strata body corporate in relation to unpaid strata fees during the period of the tenancy. You lived in various other properties while the tenant occupied the dwelling. The tenant vacated the property in 20XX. You began living in the property shortly after the tenant moved out and resided there until 20XY. The dwelling was then placed on the rental market and rented out again until it was sold. You sold the property in late 20XZ. When you left the dwelling, you moved into another property which became your main residence. When this property was sold, you claimed the main residence exemption for the entire ownership period.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-110(1) | Income Tax Assessment Act 1997 Section 118-190 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Section 118-135

Reasons for decision: Summary: You are not entitled to a full main residence exemption from when you bought the property until you moved in, as you did not move into the dwelling as soon as practicable. | Detailed Reasoning - Detailed reasoning: A capital gain or loss that arises from the disposal of your main residence is disregarded for CGT purposes. Where the dwelling was not your main residence for the whole period of ownership, or was used to produce assessable income, part of the capital gain or loss may not be exempt. A dwelling is considered to be your main residence from the time you acquired your ownership interest in it, as long as you moved in as soon as practicable. However, if there is a delay in moving in because of illness or other unforeseen circumstances and you move into the dwelling as soon as the cause of the delay is removed, the exemption may still be available from the time you acquired your ownership interest in the dwelling. If you could not move in because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest. The words 'the time it was first practicable' should not be read down to mean 'the time it was first convenient'. A mere intention to occupy a dwelling as your main residence, without actually doing so, is not sufficient to obtain the exemption. | Detailed Reasoning - Application to your circumstances: In your case, the dwelling was rented to a tenant when you acquired it. You continued to rent the property to the tenant from the settlement date until 20XX. During this time you derived rental income from the use of the property. You have stated that it was your intention to use the property as your main residence after you purchased it, however you resided in various other properties while the tenant occupied the dwelling. You have stated that you were in dispute with the tenant in relation to their occupation of the dwelling and their failure to pay rent during the tenancy however you did not take legal action to remove the tenant from the property. You have advised that you were in dispute with the strata body corporate over unpaid fees during the time that the tenant occupied the dwelling. This did not prevent you from moving into the property and establishing it as your main residence. You advised that the property was damaged by leaking water during the tenancy. However, this did not prevent the tenant from occupying the property. Similarly, it did not prevent you from occupying the property as you were able to move into the dwelling shortly after it was vacated by the tenant. The fact that a dwelling is rented to a tenant is not sufficient to establish that it was not practicable to establish it as your main residence. Accordingly, your application for an exemption from capital gains tax from 200X until you moved in to the property is denied. | Summary: You are entitled to the main residence exemption for the period of time that the dwelling was your main residence. In your circumstances, you are not allowed to continue to treat the dwelling as your main residence after you moved out, as you had moved into another dwelling that you treated as your main residence. | Detailed Reasoning - Detailed reasoning: If you use a dwelling to produce assessable income, you may elect to continue to treat that dwelling as your main residence for a period of 6 years after you leave the property, as long as it has been established as your main residence. If you make this election, you cannot treat any other dwelling as your main residence during that period. | Detailed Reasoning - Application to your circumstances: You established the dwelling as your main residence in 20XX when you moved in to the property. You vacated the property in early 20XY and returned it to the rental market. At around the same date, you moved in to another property. You advise that this property has since been sold, and that you have claimed the main residence exemption for the full period of your ownership for that property. Consequently, you are only eligible for an exemption from capital gains tax from the time that you moved in to the property until you moved out and established another property as your main residence.