Private ruling: Capital gains tax – main residence
Date of advice: 12 December 2018
Published: April 2019
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Can you apply the full main residence exemption for Capital Gains Tax purposes on the sale of property B? | A1: No | Q2: Can you apply a partial residence exemption for Capital Gains Tax purposes on the sale of Property B? | A2: Yes.

Relevant facts and circumstances: You acquired property A as joint owner with your spouse, and you acquired full ownership of this property when your spouse passed away. You purchased Property B. You stayed in your property B for four to five times a year for three to eight weeks. You sold your principal place of residence Property A. After you sold your Property A you treated your Property B as your main residence, you lived at the property for seven months continuously of each year. Your personal belongings were in the Property B and gas/power was connected in your name and your mail was delivered to the unit. You have never used the Property B for income producing purposes. You acquired an interest in fee simple remainder expectant in Property C so that you would have accommodation when visiting your family. You acquired full share in Property C. You have never treated property C as your main residence. You moved into an aged care facility. You rent your Property C. You sold your Property B.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118B | Income Tax Assessment Act 1997 section 118-110(1) | Income Tax Assessment Act 1997 section 118-135 | Income Tax Assessment Act 1997 section 118-185 | Income Tax Assessment Act 1997 section 118-185(2)

Reasons for decision: Summary: Subdivision 118-B of the Income Tax Assessment Act 1997 ( ITAA 1997) provides that a capital gain or capital loss you make from a capital gains tax (CGT) event that happens to a dwelling that is your main residence, can be ignored. Section 118-100 of the ITAA 1997 provides that this exemption does not apply in full if: ● It was your main residence during part only of your ownership period; or ● It was used for the purpose of producing assessable income. Section 118-135 of the ITAA 1997 provides that if you move in as soon as practicable after acquiring your ownership interest, then the dwelling is treated as your main residence from when the interest is acquired until it actually became your main residence. The Commissioner’s view of the phrase “as soon as practicable” is presented in Tax Determination 92/147. As soon as practicable means that, unless there are unforeseen circumstances, or events happen beyond your control you must move into the dwelling as soon as possible. Where section 118-135 of the ITAA 1997 does not apply because taxpayer does not move into a residence as soon as practicable, the residence will only be treated as their main residence for CGT purposes from the date they actually move into the dwelling. In your circumstances, you purchased the property B. You treated your Property A as your main residence until you sold it. You then moved in to your Property B and established it as your main residence. Therefore you cannot be considered to have moved in to the Property B as soon as practicable and your Property B will not be treated as your main residence for CGT purposes from the date you acquired it under section 118-135 of the ITAA 1997. Accordingly, the Property B was not your main residence for your entire ownership period and you are not entitled to a full main residence exemption. However, as you did establish the Property B as your main residence when you moved into the property in, you will be entitled to a 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: ● CG or CL amount x (Non-main residence days/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.