Private ruling: Capital gains tax - main residence exemption
Published: October 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Are you entitled to a partial main residence exemption upon disposal of your dwelling, where the dwelling was your main residence for only part of your ownership? | Yes

Relevant facts and circumstances: You and your spouse purchased a dwelling (property A) prior to September 1985. The dwelling was situated on land less than 2 hectares. You sold this property. You and your spouse jointly purchased land post September 1985. You built a dwelling on the land a few years later (property B). This property was for your retirement and to be close to your ageing parents. The land is less than 2 hectares in size. You sold this property in the financial year ending 30 June 20XX. You started spending time living in both your properties as you were spending time attending to the care of your elderly parents. Your personal belongings were moved into one of the properties (property B) and all services were fully connected in your name. You chose to treat property B as your main residence for capital gains tax purposes from a date until it was sold in the year ending 30 June 20XX. You and your spouse purchased a dwelling (property C). The dwelling is situated on land less than 2 hectares. After selling property A, you spent time living at property B and C. You now have the one dwelling.

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 118-125 | Income Tax Assessment Act 1997 Section 118-130 | Income Tax Assessment Act 1997 Section 118-185

Reasons for decision: Detailed Reasoning - Capital gains tax (CGT): Section 102-20 of the Income Tax Assessment Act 1997 states that you make a capital gain or capital loss if and only if a CGT event happens. CGT events are the different types of transactions or happenings which may result in a capital gain or a capital loss. The disposal of a CGT asset is the most common CGT event and is referred to as CGT event A1 (section 104-10 of the ITAA 1997). A taxpayer disposes of a CGT asset if a change of ownership occurs from the taxpayer to another entity. CGT assets include real estate. Subsection 104-10(3) of the ITAA 1997 describes when the event happens. The time of the event is either when the taxpayer enters into a contract for the 'disposal', or if there is no contract - when the change of ownership occurs. A taxpayer makes a capital gain if the capital proceeds from the disposal are more than the asset's cost base. A taxpayer makes a capital loss if those capital proceeds are less than the asset's reduced cost base. | Detailed Reasoning - Main residence exemption: You can disregard a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence if: • you are an individual, • the dwelling was your main residence throughout your ownership period, • the property did not pass to you through a trust or a deceased estate and • the property is two hectares or less For an established dwelling, there is no restriction on the length of time that you live in the dwelling before it is considered to be your main residence. Some relevant factors to consider in determining if a dwelling is your main residence include, but are not limited to: • Where your family lives • Moving personal belongings into the home • The address to which your mail is delivered • Your address on the electoral roll • Connection of utilities in your name • Your intention to occupying the dwelling If you owned more than one dwelling during a particular period, only one of them can be your main residence at any one time (not including pre-CGT dwellings). You can choose to treat a dwelling as your main residence even when you no longer live in it. The choice, of which dwelling is your main residence, is made by the way that you prepare your tax return (that is, by not including a capital gain in your tax return). It must be made by the day you lodge your income tax return for the income year in which you sell the dwelling, or within a further time allowed by the Commissioner. | Detailed Reasoning - Partial main residence exemption: Section 118-185 of the ITAA 1997 provides that if a dwelling was your main residence for only part of your ownership period, you will only get a partial exemption for a CGT even that happens in relation to the dwelling. The capital gain or capital loss is calculated using the following formula: Total capital gain or loss x Non-main residence days Total days in your ownership = Taxable portion Where: Non-main residence days is the number of days in your ownership period when the dwelling was not your main residence; and The ownership period for capital gains tax purposes is from settlement of the purchase contract until settlement of the sale contract. (section 118-125 and section 118-130 of the ITAA 1997). In your circumstances you would be entitled to a partial main residence exemption. You chose to treat your property B as your main residence from a date until you sold it.