Private ruling: Capital Gains Tax
Date of advice: 22 October 2018
Published: December 2018
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim the fu ll CGT main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Are you entitled to claim a partial CGT main residence exemption in section 118-185 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes | Q3: Are you entitled to use winter 20XX as the date for valuation of a property in Country A when calculating the cost base of this property? | A3: Yes

Relevant facts and circumstances: You purchased a property in Country A and occupied this property in winter 20AA. You advertised this property for rental in winter 20BB and a tenant occupied the property in spring 20BB You were granted an Australian permanent residency visa in 20AA and took up permanent residency in Australia for tax purposes in winter 20XX. The property was vacated by the tenant and sold in summer 20YY.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110. | Income Tax Assessment Act 1997 section 118-130. | Income Tax Assessment Act 1997 section 118-135. | Income Tax Assessment Act 1997 section 118-145. | Income Tax Assessment Act 1997 section 118-185. | Income Tax Assessment Act 1997 Subsection 855-45 | Income Tax Assessment Act 1997 Subsection 855-45(2) | Income Tax Assessment Act 1997 Subsection 768-950

Reasons for decision: Summary: Section 118-110 of the ITAA 1997 provides that a capital gain or loss that you make from a CGT event that happens to a dwelling you own is disregarded if certain conditions are met. The conditions are that you must be an individual and the dwelling was your main residence throughout your ownership period and the dwelling did not pass to you through a deceased estate. Section 118-130 of the ITAA 1997 provides that for a dwelling that you acquire under contract, your ownership period commences from the time you acquired legal title to it, or the earlier time if the contract provides. The ownership period then extends until your legal ownership interest in the dwelling ends. Section 118-135 of the ITAA 1997 provides that a dwelling becomes your main residence from the commencement of your ownership period if you moved into it as soon as practicable after you acquired your ownership interest in it. Section 118-145 of the ITAA 1997 provides that for a dwelling that is your main residence that you are absent from, and use it to produce assessable income, you can choose to do so for a maximum period of 6 years. Each time that you return to live in the dwelling as your main residence allows for a further absence of 6 years. During this period of absence, you are not entitled to treat any other dwelling as your main residence. Section 118-185 of the ITAA 1997 provides that a capital gain or loss you make in regards to your main residence can be reduced if you meet certain conditions. The conditions are that you must be an individual and the dwelling was your main residence for only part of your ownership period and the dwelling did not pass to you through a deceased estate. The capital gain or loss is reduced using the below formula: Capital gain or loss amount x (non-main residence days/days in your ownership period) The example provided in section 118-185 of the ITAA 1997 is that: A taxpayer buys a house in July 1990 and moved in immediately. In July 1993, they moved out and began to rent it. They then sold the property in June 2000, making a capital gain of $10,000.00. They chose to continue to treat the dwelling as their main residence under section 118-145 of the ITAA 1997 for the first 6 of the 7 years that the residence was rented out. Under this section, you will be taken to have made a capital gain of: $10,000.00 x (365/3650) = $1,000.00. | Detailed Reasoning - Application to your circumstances: You purchased the Property and moved in to it as soon as practicable. You began using the Property for the purpose of producing assessable income. You are not entitled to the full main residence exemption, because you were absent from the Property and used it to produce assessable income for more than 6 years. You are entitled to a partial main residence exemption calculated using the formula in section 118-185 of the ITAA 1997. Section 855-45 of the ITAA 1997 provides that “The first element of the cost base and reduced cost base of the asset (at the time you become an Australian resident) is its market value at the time”. This section is subject to section 768-950 of the ITAA 1997, individuals who become Australian residents and who are temporary residents immediately after they become Australian residents. However, in your case, you have simply taken up your Australian residency so section 768-950 does not apply. Accordingly, the first element of the costs base and reduced cost base of your assets is their market value at the time you became a resident. In your case this date is winter 20XX.