Private ruling: CGT - main residence exemption
Date of advice: 17 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to the full main residence exemption upon the sale of property A? | A1: No | Q2: Are you entitled to a partial main residence exemption upon the sale of property A? | A2: Yes

Relevant facts and circumstances: You acquired a property on XX January 20XX. Your intention upon acquisition was to develop the property by demolishing the original dwelling, subdividing the land and building two new dwellings. The original dwelling on the property was rented from acquisition until the development work commenced. At the time you purchased the property, you owned and lived at property C, as your main residence with family. The subdivision resulted in the following two properties, property A and property B. Your intention upon completion was to sell one of the dwellings and live in the other one. In mid 20XX, you signed a Real Estate Sales Agreement for the marketing and sale of property A. In mid-May 20XX you signed a Real Estate Sales Agreement for the marketing and sale of property B. You moved into property A in mid-August 20XX, however due to personal reasons you moved out of the property and resumed living at property C. You connected services to property A and changed your address on your vehicle registration and driver’s licence to property A’s address. Property B sold in 20XX. Property A sold in 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-185 | Income Tax Assessment Act 1997 section 118-190 | Income Tax Assessment Act 1997 section 118-145

Reasons for decision: Summary: Generally, you can disregard a capital gain or capital loss from a capital gains tax (CGT) event that happens to a dwelling that is your main residence (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. The following factors may be relevant in working out whether a dwelling is your main residence: ● the length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence ● whether your family lives there ● whether you have moved your personal belongings into the home ● the address to which your mail is delivered ● your address on the electoral roll ● the connection of services (for example, phone, gas or electricity) ● your intention in occupying the dwelling. Whilst these factors are indicators of whether a dwelling would be considered your main residence, the decision hinges on the actual facts of each case. If the dwelling is not genuinely your main residence, then the main residence exemption will not apply. A mere intention to construct or occupy a dwelling as your main residence – without actually doing so – is not sufficient to obtain the exemption. In your case, you acquired the property and rented it until the development works commenced. At the completion of the development works both property A and property B were placed on the market for sale. You moved into property A, making it your main residence in mid-August 20XX, however in late 20XX, you moved out of the property, returning to your previous main residence at property C. As property A was not your main residence for the entire period you owned it and you also used the property to produce assessable income, you will not be entitled to the full main residence exemption upon the sale of property A. You will, however be entitled to a partial main residence exemption for the period property A was your main residence. Property A will only be considered your main residence from the time you actually moved into property A in mid- August 20XX. Section 118-145 of the ITAA 1997 provides that if a dwelling that was your main residence ceases to be your main residence, you can choose to treat that dwelling as your main residence for capital gains tax purposes. If you make this choice, you cannot treat any other dwelling as your main residence for that period. In your case, you can make the choice to treat property A as your main residence from the time it became your main residence in mid 20XX until the property was sold, late 20XX. If you make this choice you will not be able to also treat property C as your main residence for the same period of time. Calculating a partial exemption The part of the capital gain that is taxable is calculated as follows: Total capital gain made from the CGT event x number of days in your ownership period when the dwelling was not your main residence total number of days in your ownership period