Private ruling: Capital gains tax (CGT) main residence exemption
Date of advice: 24 November 2017
Published: April 2018
Ruling period: Year ending 30 June 20XX.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Are you entitled to claim the full CGT main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Are you entitled to use the CGT main residence exemption absence rule in section 118-145 of the ITAA 1997? | A2: Yes. | Q3: Are you entitled to claim a partial CGT main residence exemption in section 118-185 of the ITAA 1997? | A3: Yes.

Relevant facts and circumstances: You arrived in Australia in 19XX and were a resident for tax purposes. You moved to a country outside of Australia for work in the year 20XX and ceased being a resident. In 20XX you signed a contract to purchase the Property, which settled on 20XX. You moved into the Property and treated it as your main residence. In 20XX you returned to the country outside Australia to work. In 20XX the Property was first used to produce assessable income. The Property has been used to produce assessable income from this time until 20XX when you retired and returned to Australia to live in the Property as your main residence. You are now contemplating selling the Property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110. | Income Tax Assessment Act 1997 section 118-130. | Income Tax Assessment Act 1997 section 118-135. | Income Tax Assessment Act 1997 section 118-145. | Income Tax Assessment Act 1997 section 118-185.

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 118-110 of the ITAA 1997 provides that a capital gain or loss that you make from a CGT event that happens to a dwelling you own is disregarded if certain conditions are met. The conditions are that you must be an individual and the dwelling was your main residence throughout your ownership period and the dwelling did not pass to you through a deceased estate. Section 118-130 of the ITAA 1997 provides that for a dwelling that you acquire under contract, your ownership period commences from the time you acquired legal title to it, or the earlier time if the contract provides. The ownership period then extends until your legal ownership interest in the dwelling ends. Section 118-135 of the ITAA 1997 provides that a dwelling becomes your main residence from the commencement of your ownership period if you moved into it as soon as practicable after you acquired your ownership interest in it. Section 118-145 of the ITAA 1997 provides that for a dwelling that is your main residence that you are absent from, and use it to produce assessable income, you can choose to do so for a maximum period of 6 years. Each time that you return to live in the dwelling as your main residence allows for a further absence of 6 years. During this period of absence, you are not entitled to treat any other dwelling as your main residence. Section 118-185 of the ITAA 1997 provides that a capital gain or loss you make in regards to your main residence can be reduced if you meet certain conditions. The conditions are that you must be an individual and the dwelling was your main residence for only part of your ownership period and the dwelling did not pass to you through a deceased estate. The capital gain or loss is reduced using the below formula: Capital gain or loss amount x (non-main residence days/days in your ownership period) The example provided in section 118-185 of the ITAA 1997 is that: A taxpayer buys a house in July 1990 and moved in immediately. In July 1993, they moved out and began to rent it. They then sold the property in June 2000, making a capital gain of $10,000.00. They chose to continue to treat the dwelling as their main residence under section 118-145 of the ITAA 1997 for the first 6 of the 7 years that the residence was rented out. Under this section, you will be taken to have made a capital gain of: $10,000.00 x (365/3650) = $1,000.00. Application to your circumstances You purchased the Property and moved in to it as soon as practicable. In 20XX you began using the Property for the purpose of producing assessable income. You are not entitled to the full main residence exemption, because you were absent from the Property and used it to produce assessable income for more than 6 years. You are entitled to a partial main residence exemption calculated using the formula in section 118-185 of the ITAA 1997.