Private ruling: Income tax - Capital gains tax - CGT assets - Main residence
Date of advice: 23 August 2016
Published: September 2016
Ruling period: 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a full main residence exemption? | A1: No. | Q2: Are you entitled to a partial main residence exemption? | A2: Yes

Relevant facts and circumstances: You purchased the dwelling in 19XX when you were working overseas. You connected utilities, furnished the dwelling and directed your mail to that address. Your relative resided in the dwelling from settlement. Around mid 200X you returned to Australia and moved into the dwelling with your spouse. You resided in the dwelling from the time you returned to Australia until late 20XX then started working overseas. Your spouse and your relative continued to reside in the dwelling sporadically. In 20XX you entered into a contract to dispose of the dwelling.

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 118-145

Reasons for decision: Detailed Reasoning - Main residence: Generally, you can disregard any capital gain or capital loss realised on the disposal of a dwelling that was your main residence. To get the full exemption from capital gains tax (CGT) the following conditions must be met: • you are an individual; • you moved into the dwelling as soon as practicable; • the dwelling must not have been used to produce assessable income; and • the dwelling was your main residence throughout your ownership period. | Detailed Reasoning - Moving into the dwelling as soon as practicable: Section 118-135 of the Income Tax Assessment Act 1997 (ITAA 1997) extends the main residence exemption to take into account the time needed to move into a dwelling. The section allows you to treat a dwelling as your main residence for the period from when you acquired it until it was first practicable to move into it. The term 'as soon as practicable' in section 118-135 of the ITAA 1997 is used to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the dwelling became your main residence on the date you acquired it; that is, you would have to physically move in on the day of settlement. In your case, you did not move into the dwelling as soon as practicable. Although you took steps to establish it as your main residence, such as connect utilities and buy furniture, you delayed physically moving into the dwelling as soon as practicable Therefore, you will not be entitled to a full main residence exemption on the dwelling. However, as you did establish the dwelling as your main residence when you physically moved into the dwelling around mid 200X, you will be entitled to a partial main residence exemption. | Detailed Reasoning - Treating a dwelling as your main residence after 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 section 118-145 ITAA 1997 extends the main residence exemption. In these cases you can choose to have a dwelling treated as your main residence for capital gains tax purposes even though the dwelling has actually ceased to be the main residence. The application of the CGT main residence exemption in these circumstances is subject to a number of limitations. Note: A taxpayer who has never used the dwelling as a main residence cannot be said to have ceased to use it, as such, with the result that he or she cannot choose to "continue" to treat it as the main residence. You can only make this choice for a dwelling that you have first occupied as your main residence. Section 118-135 ITAA 1997 provides that: If a dwelling becomes your main residence by the time it was first practicable for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence. You did not move into the dwelling as soon as was practicable to do so after you acquired the dwelling. Accordingly, section 118-135 of ITAA 1997 would not apply to treat the property as your main place of residence from the time of acquisition You moved into the dwelling as your main place of residence around mid 200X, and then moved out late 20XX. Therefore it is only from the date you moved in that the dwelling can be treated as your main residence. As you did not use the dwelling to produce income, you can choose to continue to treat the dwelling as your main residence for an unlimited period after you cease living in it. If you make this choice, you cannot treat any other dwelling as your main residence for that period.