Private ruling: Capital gains tax and the main residence exemption
Date of advice: 2 June 2016
Published: July 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to the capital gains tax (CGT) main residence exemption on the sale of property A? | A1: Yes.

Relevant facts and circumstances: You purchased property A, in city A, which settled in 200X. The property was occupied property as your main residence less than a month after settlement. After accepting a job in city A, you vacated property A and moved into a rental property in city B in 20XX. You rented property A from the period it was vacated by you, and in 20YY you again occupied property A as your main residence until it was sold in 20YY. Your spouse does not own property, and they treat property A as their main residence. You have provided evidence of property A being occupied as your main residence soon after it was purchased, and after occupying it before it was sold. The period between the date you vacated property A in 200X and occupied it in 20YY did not exceed six years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Section 118-145(1) | Income Tax Assessment Act 1997 Section 118-150, and | Income Tax Assessment Act 1997 Section 118-185.

Reasons for decision: Summary: The disposal of your residence has triggered CGT event A1 (section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence for the entire period you owned it (section 118-110 of the ITAA 1997). However, if the dwelling is not your main residence for your entire ownership period, you will only be entitled to a partial exemption from capital gains tax under section 118-185 of the ITAA 1997. However, subsection 118-145(1) of the ITAA 1997 allows you to choose to treat a dwelling as your main residence even though you no longer live in it. You cannot make this choice for a period before a dwelling first becomes your main residence. This choice needs to be made only for the income year that a CGT event happens to the dwelling, that is, the year that you enter into a contract to sell it. If you make this choice, you cannot treat any other dwelling as your main residence for that period (except for a limited time if you are changing residences). If you use the dwelling to produce income you can choose to treat it as your main residence for up to six years after you cease living in it. If you are absent more than once during the period you own the home, the six-year maximum period that you can treat it as your main residence while you use it to produce income applies separately for each period of absence. In your case it is accepted that you are entitled under subsection 118-145(1) of the ITAA 1997, to treat the residence main residence during the period you were renting it out for the following reasons: • the property was first occupied as your main residence before it was let out, and • the rental period did not exceed six years. As you have chosen the treat the property as your main residence, the property was occupied before being let out and the rental period did not exceed six years the dwelling would be considered to be your main residence for the entire ownership period. Therefore you can disregard the capital gain from the sale of the dwelling.