Private ruling: Capital gains tax – main residence
Date of advice: 3 April 2019
Published: May 2019
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Can you include non-deductible expenses in the cost base for your property under section 110-25 of the ITAA 1997? | A1: Yes. Under Division 110 of the ITAA 1997, there are five elements which may be included in the cost base and reduced cost base of a CGT asset. You may include the costs of owning an asset under the third element of the cost base. The costs of owning an asset include rates, land taxes, repairs and insurance premiums. You also include any non-deductible interest on loans used to finance the acquisition of a CGT asset or any capital expenditure to increase an asset’s value. | Q2: Are you entitled to a partial main residence exemption for your property? | A2: Yes. Section 118-185 of the ITAA 1997 provides that you are entitled to a partial exemption from CGT where a dwelling was your main residence for part of your ownership period. | Q3: Can you calculate your capital gain with reference to the formula under section 118-185 (2) of the ITAA 1997? | A3: Yes. Subsection 118-185(2) of the ITAA 1997 provides a formula which allows you to adjust the capital gain or capital loss amount calculated on disposal of the property to take into account the proportion of your main residence days in the property to the total number of ownership period days of the property. The capital gain or loss is calculated using the following formula: Capital gain or loss amount X non-main residence days total ownership period days

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You purchased Property 1 in 20XX. You lived at this property as your main residence. You purchased Property 2 in 20XX. Contracts were exchanged in 20XX and it settled in 20XX. Property 2 was rented from 20XX to 20XX while you continued living at Property 1 (your main residence). You completed a renovation on Property 2 and then moved in (in 20XX). This property became your new main residence. You sold Property 1 in 20XX and it settled in 20XX. Having lived at Property 2 for four years (as your main residence), you sold this property in 20XX and it settled in 20XX. During the period you lived at Property 2 it was no longer producing income. The costs of owning this property (council rates, strata levies, mortgage interest etc) were non-deductible and you have not claimed any of these expenses in your subsequent income tax returns. In 20XX you moved into a retirement village.

Relevant legislative provisions: Income Tax Assessment Act 1997 division 110-25 | Income Tax Assessment Act 1997 subsection 118-185 (1) | Income Tax Assessment Act 1997 subsection 118-185 (2)