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Can a taxpayer, who occupied a dwelling as their main residence for the whole of the ownership period and did not use the dwelling to produce assessable income, choose not to apply the main residence exemption under subsection 118-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. Subsection 118-110(1) of the ITAA 1997 clearly provides that a capital gain or loss is disregarded when one of the CGT events specified in subsection 118-110(2) of ITAA 1997 happens to a taxpayer's main residence. Section 118-110 of the ITAA 1997 does not provide a choice, so a taxpayer cannot choose for the main residence exemption not to apply.

The taxpayer acquired a dwelling after 20 September 1985 and sold it two years later.

The taxpayer did not acquire the dwelling as a beneficiary and/or trustee of a deceased estate.

The dwelling was the taxpayer's main residence for the whole period of ownership and it was never used to produce assessable income.

The taxpayer had no other main residence.

The taxpayer made a capital loss when they disposed of the dwelling.

The taxpayer did not want the main residence exemption under subsection 118-110(1) of the ITAA 1997 to apply in their circumstances.

Section 118-110 of the ITAA 1997 states that: (1) A capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if: (a) you are an individual; and (b) the dwelling was your main residence throughout your ownership period; and (c) the interest did not pass to you as beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.

Subsection 118-110(2) of the ITAA 1997 provides that only certain CGT events are relevant for the purposes of the main residence exemption. CGT event A1 - disposal of a CGT asset - is a listed CGT event.

Section 118-110 of the ITAA 1997 does not provide a choice, so a taxpayer cannot choose for the main residence exemption not to apply.

Accordingly, where all of the conditions in subsection 118-110(1) of the ITAA 1997 are satisfied, a capital loss must be disregarded.