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ATO Interpretative Decision

ATO ID 2005/19 (Withdrawn)

Income tax
Capital gains tax: main residence exemption - absence rule - dwelling converted into commercial premises

Attention This ATO ID is withdrawn. Guidance on the basis of the decision in this ATO ID can be found in the Guide to capital gains tax (NAT 4151).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 21 July 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Can a taxpayer who owned a dwelling and occupied it as their main residence apply the absence rule in section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) if, immediately after ceasing to occupy it, they commenced converting it into commercial premises?


No. The taxpayer cannot choose to apply the absence rule in section 118-145 of the ITAA 1997 because that rule only applies to dwellings. Once the taxpayer commenced converting the property into commercial premises, the property is no longer considered to be a dwelling for the purpose of the main residence exemption in Subdivision 118-B of the ITAA 1997.


The taxpayer acquired a dwelling after 19 September 1985 which they used as their main residence.

Several years later, in October 2002, the taxpayer vacated the dwelling and immediately commenced converting it into commercial premises. The conversion took several months and when finished, the taxpayer rented the premises for use as commercial offices.

Since vacating the premises, the taxpayer has not treated any dwelling as their main residence.

The taxpayer sold the property as commercial premises in November 2004 and made a capital gain.

The taxpayer wishes to apply the absence rule in section 118-145 of the ITAA 1997 to continue to treat the property as their main residence for their entire period of ownership.

Reasons for Decision

A capital gain or loss that a taxpayer makes on the disposal of a dwelling that was their main residence for the whole of their ownership period is disregarded. A partial exemption is available if, for example, the dwelling was their main residence for only part of their ownership period (see Subdivision 118-B of the ITAA 1997).

For the purposes of determining the extent of the exemption, a taxpayer can choose to continue to treat a dwelling as their main residence after it has actually ceased to be their main residence (provided they are not also treating another dwelling as their main residence: section 118-145 of the ITAA 1997). However, this choice can only be made for a building that is a dwelling.

The term 'dwelling' is defined in section 118-115 of the ITAA 1997. The definition is an inclusive one so the word has its ordinary meaning in addition to the meanings attributed to it under the ITAA 1997.

The Macquarie Dictionary 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines the word 'dwelling' as a place of residence or abode; a house; continued or habitual residence. Whether a structure is a dwelling for CGT purposes will depend on the facts of each case. In Campbell v. O'Sullivan [1947] SASR 195 at 201 it was held that:

   ..."Dwelling" ordinarily signifies a place of abode or residence, a tenement, habitation, or house, which premises a person or persons are using as a place for sleeping, and usually for the provision of some or all of their meals. The word is not used as a term of art, and has to be interpreted in accordance with its ordinary, proper, and grammatical sense in the context in which it appears ...

Under the ITAA 1997, a dwelling includes a unit of accommodation that is a building or is contained in a building, and consists wholly or mainly of residential accommodation (paragraph 118-115(1)(a)). A dwelling also includes land immediately under the unit of accommodation (paragraph 118-115(1)(c) of the ITAA 1997).

Therefore, a building will satisfy the ordinary and extended meaning of 'dwelling' only to the extent that it is suitable for residential accommodation. The building in this case ceased to be suitable for residential accommodation when the taxpayer started converting it into commercial premises. From that time onwards, the land and building were no longer considered to be a dwelling within the ordinary meaning of the term or its extended statutory meaning in section 118-115 of the ITAA 1997.

Accordingly, the taxpayer cannot choose to apply the absence rule in section 118-145 of the ITAA 1997.
History Note:
The following statement about the application of the partial main residence exemption has been removed from the Reasons for Decision on 13 May 2005 as the view expressed in the statement is being reconsidered.
This means that the taxpayer will only be entitled to a partial main residence exemption when they dispose of the property (section 118-185 of the ITAA 1997). In applying the formula in subsection 118-185(2), the period from the time the taxpayer commenced to convert the property into commercial premises until the end of the ownership period will be treated as non-main residence days.

Date of decision: 21 December 2004

Year of income:Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   Subdivision 118-B
   section 118-115
   paragraph 118-115(1)(a)
   paragraph 118-115(1)(c)
   section 118-145
   section 118-185
   subsection 118-185(2)

Case References:
Campbell v. O'Sullivan
   [1947] SASR 195

Other References
Macquarie Dictionary 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW

absence choice
capital gains
capital gains tax
CGT main residence exemption
dwelling ceases to be a main residence
principal residence

Siebel/TDMS Reference Number: 4366221; 1-B0RLB46

Business Line: Small Business/Individual Taxpayers

Date of publication: 14 January 2005

ISSN: 1445-2782

ATO ID 2005/19 (Withdrawn) history   Top  
   Date   Version 
   21 December 2004   Original statement   
 You are here ®  21 July 2017   Withdrawn   


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