Private ruling: Capital Gains Tax - Exemptions - Main residence
Date of advice: 14 July 2016
Published: August 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the taxpayer be exempt from Capital Gains Tax for the sale of their main residence? | A1: Yes.

Relevant facts and circumstances: You purchased a property off the plan in 200X. The property was settled in 20XX; you moved in immediately and elected this as your main residence. You vacate the property in 20XX and decided to rent it. You earned rental income for the period between 20XX and 20YY. You did not treat another other dwelling as your main residence during your period of absence from the property. In 20YY you then moved back into the property, you then disposed of the property in 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-145

Reasons for decision: Summary: Capital Gains Tax (CGT) is the tax you pay on any capital gain you make. Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that you make a capital gain or capital loss as a result of a 'CGT event'. Your capital gain is the difference between your capital proceeds and the 'cost base' of your CGT asset. In certain circumstances, there may be an exemption that can apply, which means that the gain or loss created by a capital gains tax (CGT) event is disregarded. Exemptions from CGT are set out in Division 118 of the ITAA 1997. In particular, Subdivision 118-B of the ITAA 1997 contains the CGT main residence exemption. The exemption disregards a capital gain or capital loss you make from a CGT event that happens to your ownership interest in a dwelling, which is your main residence under section 118-110 of the ITAA 1997. Main Residence Exemption Generally, you can disregard a capital gain or capital loss made on the disposal of a property that is your main residence if: • the property was your main residence for the whole period you owned it • the property was not used to produce assessable income, and • any land on which the dwelling is situated is not more than two hectares. If you own more than one dwelling during a particular period, only one of them can be your main residence at any one time. Once a property has been established as your main residence, you may elect to continue to treat that dwelling as your main residence even though you no longer live in it. Continuing main residence status during absence Section 118-145 of the ITAA 1997 provides that you can continue to treat a dwelling as your main residence during periods of absence. It the dwelling is used to produce income the maximum period that you can choose to treat it as your main residence, while you use it for that purpose, is six years (subsection 118-145(2) of the ITAA 1997). You are entitled to another period of six years each time the dwelling again becomes your main residence and then commence using it again to produce income. If you make this choice, you cannot treat any other dwelling as your main residence while you apply this section. Section 118-135 of the ITAA 1997 provides that a dwelling will be treated as your main residence from the time that you acquired your ownership interest in it if you move in when it was first practicable to do so. Application to your circumstances Under the provisions set out in section 118-145 of the ITAA 1997 you can chose to continue to treat the property as your main residence after you moved out of it until sale of the property as the period you used it to produce income during your absence was not more than six years. Therefore you can disregard the capital gain from the sale of the dwelling.