Private ruling: Capital gains tax - main residence exemption
Date of advice: 22 March 2017
Published: August 2017
Ruling period: 30 June 20ZZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you entitled to a full main residence exemption under the six year absence rule if you sell your property? | A1: Yes.

Relevant facts and circumstances: You purchased a property in 20WW as your main residence (property A). You moved into property A as soon as practicable and this dwelling is attached to land less than two hectares. Property A was used to produce assessable income from 20XX and is still being used for that purpose. In 20XX you bought a property with your spouse on acreage and moved in together (property B). Property B is not used to produce assessable income. You have nominated property A as your main residence during the period of your absence and you are not treating any other property as your main residence. Your spouse has nominated property A as his main residence and is not treating any other property as his main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 118-110, | Income Tax Assessment Act 1997 118-145 and | Income Tax Assessment Act 1997 118-170.

Reasons for decision: Detailed Reasoning - Main residence exemption: Under section 118-110 of the ITAA 1997, you can generally disregard any capital gain or capital loss from a capital gains tax (CGT) event that happens to a dwelling that is your main residence for the entire period you owned it when: ● the dwelling was your home for the whole period you owned it; ● the dwelling was not used to produce assessable income; and ● any land on which the dwelling is situated is not more than two hectares. You are only able to treat one dwelling as your main residence at any time (apart from limited circumstance where you are changing main residences). | Detailed Reasoning - Six year absence rule: Once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence during periods of absence. Section 118-145 of the ITAA 1997, provides where the dwelling is rented, the maximum period that you may continue to treat the dwelling as your main residence is six years. You are entitled to another maximum period of six years each time the dwelling again becomes and ceases to be your main residence. | Detailed Reasoning - Spouse having different main residence: If, during a period a dwelling is your main residence and another dwelling is the main residence of your spouse (except a spouse living permanently separately and apart from you), you and your spouse must either: ● choose one of the dwelling as the main residence of both of you for the period, or ● nominate the different dwellings as your main residences for that period. Your spouse includes another person (of any sex) who: ● you were in a relationship with that was registered under a prescribed state or territory law ● although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple. There is nothing to prevent either spouse from nominating the other's dwelling as their main residence even though they do not have an ownership interest in that dwelling. The effect and intent of section 118-170 of the ITAA 1997 is that a couple will not obtain the benefit of the main residence exemption for two dwellings for periods they may or may not maintain separate main residences. | Detailed Reasoning - Your situation: In your case, you established property A as your main residence as soon as practicable and continued to do so from 20WW to 20XX. In 20XX you then moved to property B with your spouse. You began using property A to produce assessable income in 20XX and it is still being used for that purpose. Property A has been rented out for less than six years, and you (and your spouse) have nominated property A as your main residence treating no other property as your main residence. Therefore you are entitled to the full main residence exemption on property A upon its disposal.