Private ruling: Capital gains tax
Published: October 2013
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Will you be entitled to disregard the capital gain or capital loss you make when you dispose of your dwelling? | Yes.

Relevant facts and circumstances: You purchased a residential dwelling. You occupied the dwelling as soon as practicable after settlement. You subsequently moved out of the dwelling and rented it out. The dwelling has been rented out ever since. The dwelling is the only one you have owned since you purchased it. You are going to sell the dwelling within six years of renting it out and will choose to treat it as your main residence on disposal. The land the dwelling is situated on is less than two hectares in size.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-135 | Income Tax Assessment Act 1997 Section 118-145

Reasons for decision: Summary: Under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) you can generally disregard a capital gain or capital loss you make from the disposal of a dwelling that qualifies as your main residence as long as: · the dwelling was your main residence for the whole period you owned it, and · your interest in the dwelling 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. A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved into it from the time it was first practicable to do so. Where you purchase a dwelling, this would generally be the date of settlement of the purchase contract. Once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence despite an absence from the dwelling (subsection 118-145(1) of the ITAA 1997). Where the dwelling is used to produce rental income, the period of time you may treat it as your main residence is limited to a maximum of six years while you use it for that purpose. You are entitled to another maximum period of six years each time you reoccupy the building and then rent it out again (subsection 118-145(2) of the ITAA 1997). You can only choose to treat a dwelling as your main residence where no other dwelling is treated as your main residence during the period of absence. This choice is made when preparing your income tax return for the income year in which you sell the dwelling (subsection 118-145(4) of the ITAA 1997). In your case, you purchased a residential dwelling and moved into as soon as practicable after settlement. The dwelling was your main residence until you moved out and rented it to a tenant. The dwelling has been rented out ever since. You will sell the dwelling within six years of it being rented out and will not treat any other dwelling as your main residence during your period of absence. Therefore, you will be entitled to the main residence exemption when you sell the dwelling and can disregard any capital gain or loss you make from the disposal.