Private ruling: Capital Gains Tax- Main Residence Exemption
Date of advice: 14 March 2018
Published: June 2018
Ruling period: Financial year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to a partial main residence exemption? | A1: Yes

Relevant facts and circumstances: You purchased a property in October 20XX. You lived at the property for the period October 20XX to December 20XX. You then moved out and rented the property for the period December 20XX to April 20XX. You decided to move back into the property around April 20XX to June 20XX. You then moved out of the property again and rented it for the period July 20XX to present. You do not own any other properties. You are planning on selling this property before 30 June 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 118-B | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-145 | Income Tax Assessment Act 1997 section 118-155 | Income Tax Assessment Act 1997 section 118-185

Reasons for decision: Detailed Reasoning - Main residence exemption: Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence as per section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997). However, in order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it (section 118-110 and 118-185 of the ITAA 1997), must not have been used to produce assessable income (section 118-190 of the ITAA 1997) and any land on which the dwelling is situated should not be more than two hectares. Due to your circumstances you are not entitled to a full main residence exemption, this is because the property has been rented for more than 6 years after you moved out. However you are entitlement to a partial main residence exemption. | Detailed Reasoning - Absence choice (six year absence rule exemption): 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 (subsection 118-145(3) of the ITAA 1997). 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 (subsection 118-145(2) of the ITAA 1997). You are entitled to another period of six years each time the dwelling again becomes your main residence and then commence using it again to produce income. If you make this choice, you cannot treat any other dwelling as your main residence while you apply this section. If you own more than one dwelling, only one of them can be your main residence at any one time. In relation to your circumstances, you initially lived in the residence for X months and then rented it for a period of X months before moving back in. You can claim the full main residence exemption for this period. For the second rental period starting July 20XX you are able to claim a maximum of 6 years of the dwelling being used to produce assessable income (be rented). The below formula can be used to calculate your partial main residence exemption. | Detailed Reasoning - Partial main residence exemption: Section 118-185 of the ITAA 1997 states that if a dwelling was your main residence for only part of your ownership period, you will only get a partial exemption for a CGT event that occurs in relation to the dwelling. The capital gain or loss is calculated using the following formula: Total capital gain or loss x Non-main residence days Total days in your ownership period Where: ● non-main residence days is the number of days in your ownership period when the dwelling was not your main residence, and ● the ownership period for capital gains tax purposes is from the date of settlement of the contract to purchase the property until the date of signing of the contract of sale of the property.