Private ruling: Capital gains tax
Date of advice: 17 February 2016
Published: April 2016
Ruling period: Year ending 30 June 2016.
Date scheme commenced: 1 July 2015

Ruling: Q1: When you dispose of your home will you be fully exempt from paying capital gains tax? | A1: No. | Q2: When you dispose of your home will you be partially exempt from paying capital gains tax? | A2: Yes.

Relevant facts and circumstances: In 200X you took a job interstate and relocated. While there you rented out your former home for short periods while returning periodically. In 200X you decided that you would eventually like to move interstate again after finishing your current work. You sold your former home to purchase a house in a new location. This house was tenanted and the tenants had a further two years on their lease at the time of purchase. In 200X the tenants left the house and one of your family members moved in. You periodically visited during your time off work. In 20XX after your family member left the house you decided to rent it out for another two years. In 20XX you moved into the home. In early 20XX you moved closer to your current work and rented out the home before returning to it later in the year. You are now considering selling your home.

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

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset to someone else. For example, if you sell a property, land and dwellings are CGT assets. 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. You are only able to treat one dwelling as your main residence at any time (apart from limited circumstances where you are changing main residences). 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. A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved into it as soon as practicable after that time. If you purchased the dwelling this would generally be the date of settlement of the purchase contract. However, if there is a delay in moving in because of illness or other unforeseen circumstances, the exemption may still be available from the time you acquired your ownership interest in the dwelling. If you could not move in because the dwelling was being rented to someone, you are not considered to have moved in as soon as practicable after you acquired your ownership interest. A mere intention to occupy a dwelling as your main residence - without actually doing so - is not sufficient to obtain the exemption. In your case, you first moved into the home in 20XX. It is at this point that it can be considered to have become your main residence. As the property was purchased in 200X, the sale of the property will not be fully exempt from CGT. The part of the capital gain that is taxable is calculated as follows: Total capital gain made from the CGT event x number of days in your ownership period when the dwelling was not your main residence total number of days in your ownership period Once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence during periods of absence. Section 118-145 of the ITAA 1997, provides where the dwelling is rented, the maximum period that you may continue to treat the dwelling as your main residence is six years. You are entitled to another maximum period of six years each time the dwelling becomes and ceases to be your main residence. As a result, the main residence status of your property is unaffected by you briefly renting it out in 20XX.