Private ruling: CGT and the main residence exemption.
Published: July 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: 1. Are you entitled to claim the full CGT main residence exemption in relation to the sale of Property A? | A4: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 100-20 | Income Tax Assessment Act 1997 - Section 102-5 | Income Tax Assessment Act 1997 - Division 104 | Income Tax Assessment Act 1997 - Section 104-10 | Income Tax Assessment Act 1997 - Section 108-5 | Income Tax Assessment Act 1997 - Division 118 | Income Tax Assessment Act 1997 - Section 118-145 | Income Tax Assessment Act 1997 - Section 118-150

Reasons for decision: Detailed Reasoning - Capital gains tax (CGT): Under section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997), your assessable income includes any 'net capital gain' made in an income year and you will only make a capital gain (or loss) if a 'CGT event' happens. Division 104 of the ITAA 1997 sets out all the CGT events for which a taxpayer can make a capital gain or loss. Under section 104-10 of the ITAA 1997, CGT event A1 happens, in relation to a taxpayer, if the taxpayer disposes of a 'CGT asset'. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. For example, if you sell an asset for more than you paid for it, the difference is your capital gain. You make a capital loss if your reduced cost base of your CGT asset is greater than the capital proceeds. | Detailed Reasoning - The definition of 'CGT asset' includes real property.: In your case, you disposed of a CGT asset, Property A, in 20XX. You had purchased this property in 200X and resided in it until you relocated instate several years later. Division 118 of the ITAA 1997 details general exemptions for many capital gains and capital losses. One of the most common CGT exemptions is the main residence exemption. This exemption disregards a capital gain or capital loss a taxpayer makes from a CGT event that happens to a dwelling which is their main residence. The exemption may disregard all or part of any capital gain or capital loss, depending on the circumstances surrounding the CGT event. Whether a dwelling is a taxpayer's main residence depends on the facts in each case. There are also several rules that may extend the operation of the main residence exemption. Generally, these rules extend the main residence exemption to periods where a dwelling was not being used, or able to be used as an individual's main residence. One of these rules provides that if you leave your dwelling, such that it is no longer your main residence, you may choose to continue to treat it as your main residence, provided certain criteria are met. If a dwelling ceases to be your main residence and you do not use it to produce assessable income, you may continue to treat it as your main residence indefinitely so long as no other dwelling is treated as your main residence in that period. In your case, you relocated interstate and moved into rented accommodation. A relative continued to live in Property A rent free until the property was sold. Therefore, you can choose to treat Property A as your main residence, for CGT purposes, until another property becomes your main residence. In 200X, you and your spouse purchased land and built a house, Property B. The house was completed around a year later and you moved into the home. You want to treat Property B as your main residence. Where you are building a dwelling, you can choose to treat it as your main residence from the time you acquired the land so long as it: · actually does become your main residence as soon as practicable after the work is finished, and · it continues to be your main residence for at least three months. In your case, you and your spouse purchased the in 200X and moved into Property B. You continue to reside in Property B. Therefore, Property B can be treated as your main residence, for CGT purposes, from the date the land was purchased. As a result, you can only choose to treat Property A as your main residence from the purchase date until you and your spouse purchase the land for Property B. Where a dwelling was not your main residence for the whole of the ownership period, you may only be entitled to a partial exemption. The CGT amount is determined on a time basis. That is, the capital gain or loss is calculated on the basis of the number of days when the dwelling was not a main residence compared to the number of days of ownership of the dwelling. In your case, you purchased the Property A in 200X and sold it in 20XX. You are entitled to a partial main residence exemption based on the following formula: Capital gain or loss X (Non-main residence days) (Days in the ownership period) Non-main residence days are the number of days in the ownership period when the dwelling was not your main residence. EXAMPLE Keanu acquired a dwelling on 20 October 2003 which he used as his main residence until 21 October 2006, from which date he let the dwelling out to tenants. Keanu eventually sold the dwelling on 8 September 2008 and made a capital gain of $40,000, calculated without regard to the exemption provisions. If Keanu does not choose to continue to have the dwelling treated as his main residence for the period 21 October 2006 to 8 September 2008 (under section 118-145 of the ITAA 1997 about absences), the capital gain is reduced pro rata by reference to the period Keanu used the dwelling as his main residence as follows: $40,000 x 688 days/1,785 days Where 688 is the number of non-residence days (between 21 October 2006 and 8 September 2008). Where 1,785 is the number of days in the ownership period (from 20 October 2003 to 8 September 2008). = $15,417.00 Thus, the reduced capital gain is $15,417.00.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | 2. Are you entitled to claim a partial CGT main residence exemption in relation to the sale of Property A? | 3. Is any capital gain or loss calculated based on the value of the property when you ceased using it as your main residence? | 3. Is any capital gain or loss calculated based on the proceeds received when the property was sold? | Relevant facts: You purchased Property A in 2001. You were the sole owner of the property. | You resided in this property from purchase up until you relocated to another state several years later. | When you first relocated, you lived in rented accommodation. | A relative continued to live in Property A rent free until the property was sold in 20XX.