Private ruling: CGT -Main residence exemption
Date of advice: 24 July 2015
Published: July 2015
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a full main residence exemption upon the sale of your property? | A1: Yes.

Relevant facts and circumstances: You signed an unconditional contract of sale to purchase the property. You moved into the dwelling on settlement date and lived there for a period of time. You had to relocate to another location for work. Your property has been rented out since you moved. You have now been away for a period of less than six years and have decided to move permanently to the new location, where you have been leasing a dwelling. You are looking at placing the property on the market for sale. You wish to exercise the absence choice available to elect to continue to treat the property as your main residence from when you stopped living in it. The property will be sold within a period of six years from when you moved out.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 subsection 118-145

Reasons for decision: Summary: Main residence exemption Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling or your ownership interest in it, if a) you are an individual; and b) the dwelling was your main residence throughout your ownership period; and c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. If you own more than one dwelling during a particular period, only one of them can be your main residence at any one time except in limited circumstances when moving from one main residence to another (section 118-140 of the ITAA 1997). As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for CGT purposes even though you no longer live in it. Continuing main residence status during absences Section 118-145 of the ITAA 1997 provides that you can continue to treat a dwelling as your main residence during periods of absence. If the dwelling is not used to produce income it can be treated as your main residence indefinitely. If 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. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.If you make this choice, you cannot treat any other dwelling you own as your main residence while you apply this section. | Detailed Reasoning - Example:: You live in a house for 3 years. You are posted overseas for 5 years and you rent it out during your absence. On your return you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house. You have not treated any other dwelling as your main residence during your absences. You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years. You can make this choice when preparing your income tax return for the income year in which you sold the house. Application to your circumstances In your case, you have elected to treat the dwelling as your main residence after you ceased living in it until the date you sell it, which will be in the XXXX-XX financial year. The dwelling has been used to produce income during your absence; however, as the total absence period is less than six years, you are able to rely on section 118-145 of the ITAA 1997 for this whole period. Therefore, you are entitled to the main residence exemption for the entire period of ownership, and you will not be liable for capital gains tax on the proceeds of the sale of the property.