Private ruling: Main residence exemption
Date of advice: 30 June 2017
Published: November 2017
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a full main residence exemption? | A1: No. | Q2: Are you entitled to a partial main residence exemption? | A2: Yes.

Relevant facts and circumstances: You were subject to the transfer system in your employment. Place of domicile and duration was determined by his employer. You bought a property to be a home for your retirement and this was reflected on your application for finance. You began leasing out the property shortly after acquisition. Following your retirement you moved into the property after the expiration of the lease agreement.

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 118-185

Reasons for decision: Detailed Reasoning - Main residence: Generally, you can disregard any capital gain or capital loss realised on the disposal of a dwelling that was your main residence. Generally, to get the full exemption from capital gains tax (CGT) the following conditions must be met: ● you are an individual; ● you moved into the dwelling as soon as practicable; ● the dwelling must not have been used to produce assessable income; and ● the dwelling was your main residence throughout your ownership period. | Detailed Reasoning - Moving into the dwelling as soon as practicable: Section 118-135 of the Income Tax Assessment Act 1997 (ITAA 1997) extends the main residence exemption to take into account the time needed to move into a dwelling. The section allows you to treat a dwelling as your main residence for the period from when you acquired it until it was first practicable to move into it. The term 'as soon as practicable' in section 118-135 of the ITAA 1997 is used to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the dwelling became your main residence on the date you acquired it; that is, you would have to physically move in on the day of settlement. The Explanatory Memorandum to the Bill which became the Tax Law Improvement Act (No.1) 1998, indicates that section 118-135 of the ITAA 1997 is intended to apply in situations where moving into the dwelling is temporarily delayed due to matters outside the persons control. The provision takes into account situations where, for example, there is a delay in moving in because of illness or other reasonable cause. The examples provided in Taxation Determination TD 92/147 illustrate the type of situations envisaged. The factors against concluding that you moved into the dwelling as soon as practicable include: ● the length of time between the date the dwelling was completed and the date you first occupy it; and ● what the dwelling is used for during that period (earning rental income). In your case, you did not move into the dwelling as soon as practicable. While we acknowledge your circumstances, the fact that you purchased the property for your retirement, you rented out the property shortly after acquisition and it was a number of years before you moved into the property indicate that you did not move into the dwelling as soon as practicable. Therefore, you are not eligible for the full main residence exemption for the period between the settlement date and the date you move into the dwelling. However, as you did establish the dwelling as your main residence when you physically moved into the dwelling, you will be entitled to a partial main residence exemption. | Detailed Reasoning - Partial main residence exemption from CGT: Section 118-185 of the ITAA 1997 provides that you are entitled to a partial exemption from CGT where a dwelling was your main residence for part of your ownership period. Subsection 118-185(2) of the ITAA 1997 provides a formula which allows you to adjust the capital gain or capital loss amount calculated on disposal of the property to take into account the proportion of your main residence days in the property to the total number of ownership period days of the property. If a dwelling was your main residence for only part of your ownership period, you will only get a partial exemption for a CGT event that occurs in relation to the dwelling. The capital gain or loss is calculated using the following formula: Capital gain or loss amount X non-main residence days total ownership period days In your case, you will be entitled to a partial main residence exemption. Your non-main residence days will be the total number of days that you were not residing in the dwelling. The total number of days in your ownership period will be the total days from the date of purchase until the date the dwelling is sold. The partial exemption rules prescribe that your capital gain is calculated based on your total ownership period. The legislation does not operate to allow any discretion in regard to choosing other periods to apply the exemption.