Private ruling: CGT - main residence exemption
Date of advice: 10 June 2016
Published: July 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner treat the property as your main residence as of the date you acquired it even though the tenants did not leave until some months later? | A1: Yes.

Relevant facts and circumstances: During 20YY you entered a contract to acquire a residential property. The property was tenanted. The existing tenants did not have a current lease with the vendors. Their lease had expired during 20XX. The vendors gave the tenants notice to vacate the property. The property settled in 20ZZ. It was your intention to move into the property on the day after settlement and use it as your main residence. Shortly after settlement, as the tenants refused to vacate the property, you lodged an application to the tenancy tribunal to have the tenants evicted. You did not obtain possession of the property until the sheriff attended to execute a warrant some months later. You moved in that day. You did not have a main residence between the time of the settlement of the property and when you moved in. During this time you stayed with friends, sleeping on their sofa.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-100 | Income Tax Assessment Act 1997 Section 118-110(1) | Income Tax Assessment Act 1997 Section 118-135

Reasons for decision: Summary: Section 118-10 of the Income Tax Assessment Act 1997 (ITAA 1997) states that you disregard any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period. Section 118-135 of the ITAA 1997 extends the main residence exemption to take account the time needed to move into a dwelling. It treats a dwelling as your main residence from the date it was acquired provided that you moved into it as soon as it was practicable to do so after it was acquired. However, the Explanatory Memorandum (EM) to the Tax Law Improvement Bill (No. 1) 1998 explains that section 118-135 of the ITAA 1997 is not extended to the situation where the individual is unable to move into the dwelling because it is being rented out. The meaning of the term 'the time it was first practicable' should not be read down to mean the time it was first convenient. In this case, you were unable to move into the property upon settlement as the existing tenants refused to vacate the property. They did not vacate the property until the sheriff executed a warrant. You moved into the property the same day the tenants vacated the property. Your situation is different to the one described in the EM. The tenants did not have an existing lease at the time of settlement and you were not renting the house by choice. You commenced appropriate action to remove the tenants from the property within a week of the settlement date. We consider that you moved into the property when it was first practicable to do so. Accordingly section 118-135 of the ITAA 1997 applies and the property is considered to have become your main residence as of the date of acquisition.