Private ruling: Main residence exemption
Date of advice: 3 December 2015
Published: February 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is any capital gain or capital loss made on the disposal of your property disregarded? | A1: Yes.

Relevant facts and circumstances: You purchased a property in City A. The property is less than 2 hectares in size. You lived in the property and treated it as your principal place of residence. You moved out of the property to permanently move to City B. You wish to choose to treat the property in City A as your principal residence for the period after you moved out. You rented out the property in City A for less than six years. The property was sold. While you were in City B you were living with relatives for a period of time before buying a property to live in.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 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. 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. If you make this choice, you cannot treat any other dwelling as your main residence for that period. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceased to be your main residence. In your case, the property was purchased by you and was your main residence. You moved out of the property and rented it out for less than six years. During the rental period you have made the choice to continue to treat the property as your main residence (absence choice). The period covered by either the absence choice or the period that you actually resided at the property covers your entire ownership period. Therefore any capital gain or capital loss that you make on the sale of the property will be disregarded.