Private ruling: Capital gains tax - main residence - first used to produce income
Published: April 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Question and Answer | Will the market value of your first main residence on the date it was first used for income producing purposes be the first element of the property's cost base? | Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 118-110 . | Income Tax Assessment Act 1997 Section 118-140. | Income Tax Assessment Act 1997 Section 118-192.

Reasons for decision: Summary: You make a capital gain or capital loss when a capital gains tax (CGT) event happens to a CGT asset. The disposal of a dwelling results in the occurrence of a CGT event A1. As a general rule you can ignore a capital gain or loss you make from a CGT event that happens to a dwelling that is your main residence. However, where that dwelling is also used to produce income you may only be entitled to a partial exemption from capital gains tax. If you start using your main residence to produce income for the first time after 20 August 1996, a special rule is applied when working out a capital gain or capital loss made on the disposal of that dwelling. This special rule applies when: · the individual will only get a partial main residence exemption because the dwelling was used for producing income during the period they owned it; · you acquired the dwelling on or after 20 September 1985; · the rental commenced after 20 August 1996; and · the individual would have had a full main residence exemption if they had sold the dwelling just before they began using it as a rental property. The effect of the rule is that the individual is taken as having acquired the dwelling at the time it first became income producing, for its market value at that time. In your case, you lived in property A until a date when you moved into another dwelling you had purchased. You began renting out property A at about this time. As you meet the conditions listed above for the special rule, you are taken to have acquired the property at the time when it was first rented. The market value of the property on that date will be the first element of the property's cost base, and expenditure incurred by you prior to that date is ignored.

Relevant facts: You purchased property A after 19 September 1985, and had resided there until a date. | You purchased property B and moved into it. | You began renting out property A from a date until it was sold at a later date. | You had property A valued by a qualified valuer when you moved into property B. The market value of the property was assessed on that date. | At a later date you disposed of property A for an amount lower than the valuation.