Private ruling: Capital gains tax
Published: October 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Are you able to apply the absence rule for the period you are not living in your main residence and get the main residence exemption? | Yes.

Relevant facts and circumstances: You purchased a property a number of years ago but after September 1985 and lived in it as your main residence (your family home). The property was less than 2 hectares. You moved out of the property. The property was rented for a short period of time. This is the only time you used the property to produce assessable income. You sold the property. You had no other main residence.

Relevant legislative provisions: Income tax Assessment Act 1997 Subdivision 118-B. | Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision: Summary: The main residence exemption under subdivision 118-B of the ITAA 1997 may allow a taxpayer to disregard all or part of any capital gain or capital loss they made from a CGT event that happens to their ownership interest in a dwelling where the dwelling was their main residence. The main residence exemption allows the capital gain or loss from the disposal of a dwelling to be disregarded for CGT purposes if the taxpayer is an individual, the dwelling was the taxpayers main residence throughout the ownership period, the property was less than 2 hectares, and was not used to produce assessable income. | Detailed Reasoning - The absence rule: The absence rule allows a taxpayer to choose to treat a dwelling as their main residence even though they no longer live in it. A taxpayer cannot make this choice for a period before a dwelling first becomes their main residence. This choice needs to be made only for the income year that the CGT event happens to the dwelling for example, the year that a taxpayer enters into a contract to sell it. If a taxpayer owns both a dwelling that they can choose to treat as their main residence after they no longer live in it, and a dwelling they actually lived in during that period of time then they make the choice for the income year they enter into the contract to sell the first of those two dwellings. If a taxpayer makes this choice, they cannot treat any other dwelling as their main residence for that period. | Detailed Reasoning - Dwelling used to produce income: If a taxpayer does not use their dwelling to produce income, for example, it is left vacant or used as a holiday home then they can treat the dwelling as their main residence for an unlimited period after they stop living in it. If a taxpayer does use their dwelling to produce income, for example, they rent it out or it is available for rent, they can choose to treat it as their main residence for up to six years after they stop living in it. | Detailed Reasoning - Your circumstances: In your case, you moved out of the property which was your main residence in an earlier year which you had previously lived in as your family home from the date of purchase after September 1985. The property was less than 2 hectares. You rented the property for a short period of time (less than six years). The property was sold .You did not treat any other property as your main residence for the period. You are entitled to apply the six year absence rule for the period of absence, and fully disregard any capital gain or loss made on disposal of the dwelling as you had previously established it as your main residence (that is, it was your family home), the property was less than 2 hectares, and you had only used it to produce assessable income from rental for a period of less than six years.