Accessing CGT exemption for main residence previously owned solely by spouse

A private binding ruling demonstrates that a taxpayer maybe CGT exempt when disposing their share of a property that they did not own until after they ceased living in it, if their spouse nominates that property as their main residence for the relevant period.

The basic case is that a taxpayer's main residence maybe fully exempt from CGT when they dispose of their interest under ITAA 1997 s 118-110.

In this scenario, the taxpayer's spouse purchased a dwelling, Dwelling A. The taxpayer moved into Dwelling A with the spouse. After a few years, the couple moved out to travel around Australia and rented out Dwelling A to a tenant for less than six years.

On return from travelling, the taxpayer purchased land and built another house. The spouse transferred 50% ownership interest in Dwelling A to the taxpayer. The taxpayer and the spouse subsequently sold Dwelling A.

According to the ruling, there is nothing to prevent either spouse from nominating the other's dwelling as their main residence even though they did not have an ownership interest in that dwelling.

In the present situation, because Dwelling A was the spouse's main residence at relevant times, the taxpayer is entitled to nominate Dwelling A as their main residence for that period as well. This is so notwithstanding that the taxpayer did not acquire a legal ownership interest in the property until after the taxpayer ceased living in the property.

In addition, if the taxpayer nominates Dwelling A as their main residence, the absence choice in ITAA 1997 s 118-145 will also apply, such that the taxpayer will be entitled to a full main residence exemption on their share of the eventual sale of the property.

Consideration should be given as to ownership of main residence between spouses and their entitlement to CGT exemption.

Information sourced using CCH iknow