Private ruling: Capital gains tax - main residence
Published: October 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Are you able to apply the absence rule for the period you were not living in your main residence and get a full main residence exemption? | Yes.

Relevant facts and circumstances: You purchased a property a number of years ago (after 19 September 1985) and lived in the property as your main residence. You moved in as soon as practicable. You rented the property out for a period of time which did not exceed 6 years. For the period you rented the property you had no other main residence. You did not use the property to produce income other than the rental income. The land size was less than 2 hectares. You sold the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 118-B | Income Tax Assessment Act 1997 Section 118-110

Reasons for decision: Detailed Reasoning - Main residence exemption: The main residence exemption under subdivision 118-B of the ITAA 1997 may allow a taxpayer to disregard all or part of any capital gain or capital loss they made from a CGT event that happens to their ownership interest in a dwelling where the dwelling was their main residence. The main residence exemption allows the capital gain or loss from the disposal of a dwelling to be disregarded for CGT purposes if the taxpayer is an individual, the dwelling was the taxpayer's main residence throughout the ownership period, the taxpayer did not use the property to produce assessable income and the land on which the dwelling is situated and adjacent to is less than 2 hectares. However, subject to the absence rule, a taxpayer will only get a partial exemption for a CGT event that happens in relation to their ownership interest in a property if the dwelling was their main residence for only part of their ownership period. | Detailed Reasoning - The absence rule: The absence rule allows a taxpayer to choose to treat a dwelling as their main residence even though they no longer live in it. A taxpayer cannot make this choice for a period before a dwelling first becomes their main residence. This choice needs to be made only for the income year that the CGT event happens to the dwelling for example, the year that a taxpayer enters into a contract to sell it. If a taxpayer owns both a dwelling that they can choose to treat as their main residence after they no longer live in it, and a dwelling they actually lived in during that period of time then they make the choice for the income year they enter into the contract to sell the first of those two dwellings. If a taxpayer makes this choice, they cannot treat any other dwelling as their main residence for that period. | Detailed Reasoning - Dwelling used to produce income: If a taxpayer does not use their dwelling to produce income, for example, it is left vacant or used as a holiday home then they can treat the dwelling as their main residence for an unlimited period after they stop living in it. If a taxpayer does use their dwelling to produce income, for example, they rent it out or it is available for rent, they can choose to treat it as their main residence for up to six years after they stop living in it. | Detailed Reasoning - Your circumstances: In your case, you purchased a property and moved into it a few years ago (after 19 September 1985) and you rented it out for a period of time. The rental period did not exceed 6 years. You had no other main residence for the period the property was rented. You are therefore able to apply the 6 year absence rule for the period the property was rented out, and as you established the dwelling as your main residence from the date of settlement (ie: you moved into the property to live), had no other main residence during your ownership period, did not use the property to produce income other than rental income, and the land size was less than 2 hectares, you are entitled to a full main residence exemption and any capital gain or loss made on the sale of this dwelling can be ignored.