Private ruling: Capital gains tax - main residence exemption
Date of advice: 18 March 2016
Published: May 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Can you claim the full main residence exemption on both of your properties? | A1: No. | Q2: Can you choose which property is your main residence? | A2: Yes.

Relevant facts and circumstances: You purchased a residential property in 20XX. You resided in this house continuously until 20XX. You then rented out the property for a period of less than six years. In 20XX you purchased a second property. You moved into this property as your principal place of residence until 20XX when you sold the property. You subsequently moved back in to your original property.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 102-20 | Income Tax Assessment Act 1997 - Section 118-110 | Income Tax Assessment Act 1997 - Section 118-145

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common CGT event, A1 occurs when you dispose of a CGT asset, such as property, to someone else. Under section 118-110 of the ITAA 1997, you can generally disregard any 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 when: • the dwelling was your home for the whole period you owned it; • the dwelling was not used to produce assessable income; and • any land on which the dwelling is situated is not more than two hectares. | Detailed Reasoning - Absence: Section 118-145 of the ITAA 1997 provides that in some cases, you can choose to continue to treat a property as your main residence even though you no longer live in it. You can only make this choice for a property that you have first occupied as your main residence. If you own both: • the dwelling that you can choose to treat as your main residence after you no longer live in it, and • the dwelling you actually lived in during that period, you make the choice for the income year you enter into the contract to sell the first of those dwellings. If you make this choice you cannot treat any other dwelling as your main residence for that period. You can choose when you want to stop the period covered by this choice. You only get a partial exemption for a CGT event that happens in relation to your ownership interest in a property if the dwelling was your main residence for only part of your ownership period. 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 stop living in it (subsection 118-145(2) of the ITAA 1997). | Detailed Reasoning - Application to your circumstances: You cannot claim a full main residence exemption for both properties because you are only able to treat one property as your main residence for the period you owned both properties. However, you are able to choose which property is treated as your main residence.