Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 118 - Exemptions  

Subdivision 118-B - Main residence  

Partial exemption rules

SECTION 118-190   Use of dwelling for producing assessable income  

118-190(1)    
You get only a partial exemption for a *CGT event that happens in relation to a *dwelling or your *ownership interest in it if:

(a) apart from this section, because the dwelling was your main residence or someone else's during a period:

(i) you would not make a *capital gain or *capital loss from the event; or

(ii) you would make a lesser capital gain or loss than if this Subdivision had not applied; and

(b) the dwelling was used for the *purpose of producing assessable income during all or a part of that period; and

(c) if you had incurred interest on money borrowed to *acquire the dwelling, or your ownership interest in it, you could have deducted some or all of that interest.

Example:

You acquire a house as a beneficiary in a deceased estate, rent it out for 12 months and sell it within 2 years of the deceased's death. You can ignore the rental because the exemption does not require the house to be your main residence during the 2 years after the death.

118-190(2)    
The *capital gain or *capital loss that you would have made apart from this section from the *CGT event is increased by an amount that is reasonable having regard to the extent to which you would have been able to deduct that interest.

118-190(3)    
However, you ignore any use of the *dwelling for the *purpose of producing assessable income during any period that you continue to treat it as your main residence under section 118-145 (about absences) to the extent that any part of it was not used for that purpose just before it last ceased to be your main residence.

Example:

To continue the example from section 118-185 , assume that, when you moved in, you used ¼ of the house as a doctor's surgery.

Under section 118-185 , your capital gain was $1,000.

Under this section, it would be reasonable to add an amount of:

$10,000   ×

9   10

×

1   4

=   $2,250

You have a total capital gain of $3,250 on the sale of the house.

118-190(3A)    

Also, you ignore any use of the *dwelling for the *purpose of producing assessable income during any period that you treat it as your main residence under section 118-147 (about absences) to the extent that any part of the old dwelling mentioned in that section was not used for that purpose just before the old dwelling last ceased to be your main residence.

118-190(4)    
If a *dwelling or your *ownership interest in a dwelling *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate, you ignore any use of the *dwelling for the *purpose of producing assessable income before the deceased's death if:

(a) the dwelling was the deceased's main residence just before the death; and

(b) it was not being used for that purpose just before the death, or any use for that purpose just before the death was ignored because of subsection (3).