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

Ruling: Question and answer | Are you entitled to a partial main residence exemption on your property? | Yes.

Relevant facts and circumstances: You purchased an apartment a number of years ago. The apartment was rented for a number of years. Your children moved into the apartment. You initially purchased the apartment for your children to live in after they had finished university. You and your spouse also used the property to stay in when you returned to Australia. You and your spouse moved into the property and used it as your main residence. Your children were over the age of 18 when they moved into the property. The apartment was sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Subsection 118-110(1)(b). | Income Tax Assessment Act 1997 Subsection 118-175. | Income tax Assessment Act 1997 Section 118- 185. | Income tax assessment Act 1997 Section 118-190.

Reasons for decision: Summary: Subdivision 118-B of the ITAA 1997 provides an exemption for a capital gain or capital loss from certain CGT events that happen in relation to a taxpayer's main residence. The general rule is contained in section 118-110 of the ITAA 1997 which provides that a capital gain or loss that an individual makes from the disposal of a dwelling is disregarded if: a) the taxpayer is an individual; and b) the dwelling was the taxpayer's main residence throughout the ownership period; and c) the interest did not pass to the taxpayer as a beneficiary in, and the taxpayer did not acquire it as a trustee of, the estate of a deceased person. Also, a capital gain or capital loss a taxpayer makes from a CGT event that happens in relation to a dwelling is disregarded under Division 104 of the ITAA 1997, if the taxpayer acquired the dwelling before 20 September1985. To obtain a full exemption from capital gains tax the dwelling must have become the taxpayers home as soon as practicable; and the dwelling must have been the taxpayers home for the whole period they owned it; and the dwelling must not have been used to produce assessable income; and any land on which the dwelling is situated must be two hectares or less in area. If any of these conditions are not met or are not met for the full ownership period, a partial exemption only will be available. Whether a dwelling is an individual's main residence depends on the facts of each case. The factors to be taken into account include the length of time the individual lives in the dwelling, the place of residence of the individual's family, whether the individual has moved his personal belongings into the dwelling. Section 118-175 of the ITAA 1997 is a provision that extends the main residence exemption. It provides that if a dwelling is your main residence and another dwelling is the main residence of a child of yours who is under 18 and is dependent on you for economic support, you must choose one of them as the main residence of both of you. In your case your children were over the age of 18 when they moved into the apartment. The exemption does not apply under 118-175 as you do not meet the conditions. | Detailed Reasoning - Partial main residence exemption: Section 118- 185 of the ITAA 1997 states that if a dwelling is your main residence for only part of your ownership period, you will only get a partial exemption for any loss or gain arising from a CGT event that occurs in relation to that dwelling. The capital loss or gain is calculated using the following formula: Capital gain or loss x Non main residence days* Total days of your ownership period (* non main residence days are the number of days where a dwelling was not occupied as your main residence). You and your spouse moved into the apartment as your main residence. You are therefore entitled to a main residence exemption from when you and your spouse moved in until the apartment was sold.