Private ruling: Capital gains tax
Published: March 2015
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a full main residence exemption? | A1: Yes.

Relevant facts and circumstances: You own a property which was purchased in 200X. You lived in the property for approximately 12 months after purchasing it. You then moved out and began renting it. You purchased a new property and lived in it for just over 12 months before selling it. You made a capital loss on this property. You have made a choice to continue to treat the original property as your main residence after you moved out. You intend to sell the original property within 6 years of when you began renting it out.

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

Reasons for decision: Summary: The main residence exemption is outlined in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997). Under section 118-110 of the ITAA 1997 you are eligible for a full main residence exemption if the dwelling has been the family home for you, your partner and other dependents for the whole period you have owned it (ownership period), has not been used to produce assessable income - that is, you have not run a business from it or rented it out, and is on land that is not more than 2 hectares in area. 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 capital gains tax (CGT) purposes even though you no longer live in it. When you can make this choice This choice needs to be made only for the income year that the CGT event happens to the dwelling - for example, the year that you enter into a contract to sell it. If you own both: • the dwelling that you can choose to treat as your main residence after you no longer live in it, and • the dwelling you actually lived in during that period you make the choice for the income year you enter into the contract to sell the first of those dwellings. If you make this choice, you cannot treat any other dwelling as your main residence for that period. If you use the dwelling to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you cease living in it. Application to your circumstances In this case, you purchased the property in 200X and moved in. You moved out after approximately 12 months and began using it as a rental property. You purchased a new property but continued to treat the old property as your main residence. If you sell this property prior within 6 years after you ceased to live in it, you will be entitled to a full main residence exemption.