Taxpayer Case

Question 1
There is a time table about John: DATE | ACTIVE | $ | PROPERTY | 01/03/1996 | Purchase | $100,000.00 | Burwood | 01/07/2011 | Purchase | $300,000.00 | Camberwell | 01/09/2011 | Declared this house to be his main residence | | Camberwell | 30/12/2011 | Post to New York, rent property | | Camberwell | 01/03/2012 | Sell | $175,000.00 | Burwood | 30/12/2016 | Back to Melbourne | | | 01/02/2017 | Sell | $500,000.00 | Camberwell |

The CGT consequences of these events must process as follow:
Property at Burwood
Step 1 - has he made a capital gain or loss? Step 1. has he made a capital gain or loss? | BURWOOD | CAMBERWELL | | | | Question 1. | Has a CGT event happened to the taxpayer? | Disposals | [s104-A] | Disposals | [s104-A] |
Question 2.
| Is the asset a CGT asset? | land and buildings | [s108-5] | land and buildings | [s108-5] | Question 3. | Does an exception or exemption apply? | No* | [s 118-100] [s118-100] | Yes** | [s 118-100] [s118-100]
| Question 4. | Can there be a roll-over? | No | [s112-115] | No | [s112-115] |
* In this question, this property is not the main residence during the whole of the ownership period
**
Step 2 – work out amount of capital gain or loss

Step 1 - has he made a capital gain or loss?
Because the Burwood residence was John’s main residence and it had not been used for income- producing purposes, ITAA97 s118-140 allows John to treat both the Burwood and Camberwell residences as his main residence for a period of six months prior to the date of disposal of the Burwood home on 1/05/2011(01/05/2012). Under s118-130, where land or a dwelling which is the taxpayer’s main residence is acquired or disposed of under a contract and legal ownership does not pass until a later time, then CGT is to be calculated on the basis of legal ownership. The basis of legal ownership is usually when the contract for acquisition and disposal is completed. In John’s case this would be the settlement dates. David would have acquired the Camberwell property on 01/09/2012 and disposed of the Burwood proportion on 1/05/2011(01/05/2012).
This will mean that the proportion of the capital gain attributable to the time that the Burwood property was not John’s main residence will be subject to CGT.
Step 2 – work out amount of capital gain or loss
Because John acquired the property before 21/09/1999 and sold it after that time, he can choose to either: 1. Calculate the capital gain with a cost base which includes indexation frozen at 30/09/1999, or 2. Calculate the capital gain without indexation and then reduce the notional capital gain by 50%.
Under the CGT indexation method, the capital gain is calculated as follows: | $ | capital proceeds | $175,000.00 | Indexed cost base $100,000.00*1.037 | ($103,700.00) | capital gain- indexation method | $71,300.00 | | | *123.4/119.0=1.037 | |
Proportion of capital gain assessable:
**= 2/194*$71,300.00
=$735.05
**: two month (01/03/1996 to 01/05/2012) out of a total of 194 months’ ownership. This is on the basis that the Burwood home remanded the main residence until 1/9/2011when settlement took place for the Camberwell home, and that John then changed his residence to the Camberwell home. It became his main residence thereafter.
Using the CGT discount method, the capital gain is $1030.93, computed as follows: | $ | capital proceeds | $500,000.00 | less: cost base | ($300,000.00) | notional capital gain | $200,000.00 | less: 50% CGT discount | ($100,000.00) | capital gain | $100,000.00 |
The proportion of the capital gain that is assessable is 2/194*$100,000.00=$1030.93
As the CGT indexation method gives the lower capital gain of $735.05, it should be the method chosen by John.
Because John is posted overseas and therefore will cease to use his main residence, he can elect for s118-145 to apply. As an income-producing use will be made of the dwelling while John is absent, s118-145 permits the main residence exemption to apply for a period of up to 6 years while John is absent from occupancy.
The fact that John does not recommence occupancy of the Camberwell dwelling, but rather disposes of it on his return to Australia after an absence of less than 6 years, does not affect the exemption because he did not have another main residence during his period of absence from Australia.