Private ruling: Capital gains tax
Published: August 2011
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Question and answer: | Are you entitled to disregard any capital gain or loss that results from the disposal of property A to your spouse? | Yes.


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 118-10 Income Tax Assessment Act 1997 Section 118-145

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that capital gains tax (CGT) is the tax you pay on certain capital gains you make. A capital gain or capital loss can occur as a result of a CGT event. The most common CGT event is CGT event A1. Section 104-10 of the ITAA 1997 explains that this event occurs when you dispose of an asset to someone else, for example, if you sell it or give it away. In your case when you transfer the ownership of property A to your spouse a CGT event A1 will occur. | Detailed Reasoning - Main residence exemption: Generally a capital gain from the disposal of your ownership interest in a dwelling that is your main residence can be disregarded. To receive the full main residence exemption, the following must apply: · the dwelling must have been your home for the whole period you owned it; · the dwelling must not have been used to produce assessable income; or · any land on which the dwelling is situated on and adjacent to, must be 2 hectares or less. In your case, you will be disposing of property A to your spouse. It has been you and your spouse's main residence since it was purchased, and the size of the land on which the dwelling is situated on and adjacent to, is less than X hectares in size. However, since you moved to property B, property A has been used to earn assessable income as a rental property. | Detailed Reasoning - Six year absence rule: Section 118-145 of the ITAA 1997 provides that you can continue to treat a dwelling as your main residence during periods of absence. If the dwelling is not used to produce income it can be treated as your main residence indefinitely. If the dwelling is used to produce income the maximum period that you can choose to treat it as your main residence, while you use it for that purpose, is six years. You are entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, your main residence. The Commissioner does not have any discretion to extend the six year period. If you make this choice, you cannot treat any other dwelling as your main residence while you apply this section. In your case, you first made the property A available for rent after you moved into property B, and have continued to elect property A to be your main residence. Therefore you are entitled to apply the absence rule for a period of six years from the date that the property was first made available for rent. | Summary: You purchased property A and established it as your main residence. Due to your spouse's employment you moved into property B and made property A available for rent. As you elected to continue to treat property A as your main residence, you may use the absence rule to continue to treat it as your main residence for up to six years. Therefore, due to the absence rule and as you intend to dispose of the property to your spouse within six years of it first producing assessable income, any capital gain or capital loss on the disposal of the property will be disregarded.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You purchased a property (property A) and moved into the property in the same month. | The land adjacent to the dwelling, and on which the dwelling is situated is less than X hectares. | You are listed as the sole owner on the title deed of the property. | You purchased an investment property (property B). | When you moved into property B you rented out property A. This is the only income earned from property A. | You and your spouse have continued to elect property A as your main residence from the time it was purchased. | You intend to transfer the ownership of property A from you to your spouse for no consideration in the income year.