Private ruling: Main residence exemption
Date of advice: 28 October 2024
Published: 9 December 2024
Ruling period: Period Ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will a full main residence exemption apply from the time the deceased acquired the property until it became income-producing on DDMMYYYY? | A1: Yes. | Q2: Will the absence rule apply from DDMMYYYY to DDMMYYYY under section 118-45 of the Income Tax Assessment Act 1997? | A2: Yes.

Relevant facts and circumstances: Company A is the Executor and registered tax agent for the late XXX, who passed away on XXX. Their estate consisted of a 100% solely owned residential property situated at XXX and another 2 properties located in XXX. The certificate of title confirms the XXX property was acquired solely by the deceased on XXX. The deceased never resided in either of the other 2 properties and they were always used for income producing purposes. The deceased's Child resided with the deceased most fortnights (the deceased and the child's parent were divorced) and during holidays growing up. The deceased's child advised they lived in the XXX property as their main residence from the time they purchased it until they moved out of the property on XXX to live with their partner. After moving out the deceased continued to treat the property as their main residence. On XXX, the XXX property was sold, and settlement scheduled for XXX. However, as the deceased passed away just prior to this date, settlement was delayed until XXX. The size of the property is less than 2 hectares. The property was made available for rent from XXX. Various organisations were contacted to obtain the historical residential address details to support the deceased had resided in the XXXX Street property since its acquisition until they moved premises. Organisations contacted were: XXX. From those who responded, none were able to provide details from XXX, as none of their records went that far back. A termination letter to the deceased from their former employer XXX dated XXX was located. The letter was addressed to the deceased at the XXX address. The XXX confirmed the deceased lived at the XXX property from XXX to XXX. The XXX confirmed from the time the deceased acquired the XXX property in XXX, it was the only property in XXX that they had an ownership interest in. The XXX could only provide details from the XXX. The deceased's XXX and XXX income tax returns disclose the XXX property as their home address.

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

Reasons for decision: Detailed Reasoning - What is a main residence?: Generally, a dwelling is considered to be your main residence if: • you and your family live in it • your personal belongings are in it • it is the address your mail is delivered to • it is your address on the electoral roll • services such as gas and power are connected. The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant. Your main residence (your home) is exempt from capital gains tax (CGT) if you are an Australian resident and the dwelling: • has been the home of you, your partner and other dependants for the whole period you have owned it • has not been used to produce income • is on land of 2 hectares or less. To be eligible for a full main residence exemption, the dwelling must have been your main residence for the whole period you owned it and must not have been used to produce assessable income. Section 118-110 of the ITAA 1997 outlines the rules regarding CGT) main residence exemptions. Subsection 118-110(1) states that a capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if: (a) you are an individual; and (b) the dwelling was your main residence throughout your ownership period; and (c) the interest 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. In your case, the property was used as the main residence from DDMMYYYY until it became income-producing on DDMMYYYY. The property had not been used to produce assessable income during that period and you nominated it as your main residence. Based on the information you provided, the XXXX Street property, which was less than 2 hectares, was the deceased's main residence from DDMMYYYY (the time legal ownership was obtained) until DDMMYYYY. Therefore, a full main residence exemption will apply for that period for the XXXXX Street property. The absence rule under section 118-145 of the ITAA 1997 allows a taxpayer to treat a property as their main residence for up to 6 years when rented out as long as they are choosing to treat no other dwelling as their main residence for the same period. In this case, based on the information you provided, the property was used for the purpose of producing assessable income from DDMMYYYY however, the deceased chose to treat the property as their main residence for 6 years. Therefore, under section 118-145 of the ITAA 1997 the absence rule will apply from DDMMYYYY to DDMMYYYY for the XXXXX Street property. Under section 115-100 of the ITAA 1997, an individual is entitled to discount the capital gain made as a result of a CGT event by 50 percent provided: • The individual is an Australian resident for tax purposes, • The CGT event happens after 21 September 1999; and • The CGT asset was acquired at least 12 months before the CGT event happening. As the deceased held their ownership interest for longer than 12 months the 50% CGT discount in relation to the property also applies.