Private ruling: Capital gains tax
Published: September 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a partial main residence exemption? | A1: Yes. | Q2: Is your capital gain calculated using the purchase price and the valuation you obtained in 2001-02 financial year? | A2: No.

Relevant facts and circumstances: You and your spouse purchased a property during the relevant financial year. The property was rented to tenants until the end of subsequent. At this time, you and your spouse moved into the property. At this time the property was appraised by two agents in the 200X financial year. The property was sold in the 2013-14 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 subsection 118-185(1) | Income Tax Assessment Act 1997 subsection 118-192(1) | Income Tax Assessment Act 1997 subsection 118-192(2)

Reasons for decision: Summary: Under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) you are eligible for a full main residence exemption if the dwelling has been the family home for you, your partner and other dependents for the whole period you have owned it (ownership period), has not been used to produce assessable income - that is, you have not run a business from it or rented it out, and is on land that is not more than 2 hectares in area. Partial exemption Under subsection 118-185(1) of the ITAA 1997 you get only a partial exemption for a CGT event that happens in relation to a dwelling if: a) you are an individual; and b) the dwelling was your main residence for part only of your ownership period; and c) the interest did not pass to you as a beneficiary in, and you did not acquire it as trustee of, the estate of a deceased person. Under subsection 118-185(2) of the ITAA 1997 you calculate your capital gain or capital loss using the formula: CG or CL amount × Non-main residence days Days in your *ownership period | Detailed Reasoning - Example:: You bought a house in July 1990 and moved in immediately. In July 1993, you moved out and began to rent it. You sold it in July 2000, making (apart from this Subdivision) a capital gain of $10,000. You choose to continue to treat the dwelling as your main residence under section 118-145 (about absences) for the first 6 of the 7 years during which you rented the house out. Under this section, you will be taken to have made a capital gain of: $10,000 × 365 3,650 = $1,000 In this case, the property was the main residence of you and your spouse for a portion of the ownership period. Therefore, you and your spouse are entitled to a partial main residence exemption. The formula outlined above can be used to calculate the capital gain or loss. The market valuation obtained is not relevant to the calculation.