Private ruling: Absence from main residence for capital gains tax
Date of advice: 2 August 2018
Published: October 2018
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does section 118-145 of the Income Tax Assessment Act 1997 apply when I am absent from my main residence and make the dwelling available to guests on Airbnb such that I can choose to treat the dwelling as my main residence during that absence? | A1: No

Relevant facts and circumstances: In xxxx you acquired a unit (the dwelling). You moved into the dwelling after you acquired it, established it as your main residence, and consider it to still be your main residence. You reside alone in the dwelling. The dwelling is listed as your place of residence on various government records including your driver’s licence, your tax returns, the electoral roll, and your personal mail is directed there. You reside in the dwelling when you are not otherwise travelling for work or personal reasons. You own another property located in another region which was your previous main residence. This property is now rented permanently; however, there is a small unit at the rear of the property that you occasionally use when you are travelling about the region. You provide services to clients who are geographically disperse. Your central business office is located in one region while you operate remotely from your home in another region. Your business correspondence is directed to your business offices or dealt with electronically. You frequently travel both for work and personal reasons away from your dwelling for periods which vary from as short as a few days up to a number of months at a time. You estimate you travel for between four to six months of the year either visiting your clients and a network of other professionals that you are affiliated with via your business activity, or on personal travel. You use a motor home when you travel. You place your immediate personal effects (clothes and accessories, phone and laptop) within the motor home to carry with you while you travel. You store personal papers and certain other personal items (photos etc) digitally on your laptop. When you travel, you place additional effects that you do not have an immediate need to access within a lockable storage cabinet located within your dwelling. Otherwise, you leave your general furnishings and other non-personalised household items in situ within your dwelling while you are absent. In a coming month, you will travel away from your dwelling to city A via city B and town C, primarily to meet with clients, although you may stop over at a friend’s property along the way. You anticipate this travel will be for a period of one or two weeks. Time permitting, you may extend the trip to allow a short period of personal holiday. You then plan to travel interstate to city D for the balance of the month, primarily to attend a family event, although you will also meet with a local professional who is part of your business network. At the end of that period, you plan on returning to your dwelling. You anticipate that you will be absent from your dwelling for a period not exceeding one month, although you may return briefly to your dwelling on your way back from city A to city D. This will be dependent upon both on time permitting as well as the occupancy status of your dwelling at that time. While you are absent from your dwelling, you propose to list the property as vacant and available to take short stay guests on Airbnb. You have stated you understand that by recording the dwelling as being available to rent, your dwelling will have been used (or held ready for use) for the purpose of producing income, even if no one in fact stays at the property during that period. You will pay a cleaner to attend your dwelling and maintain its cleanliness between paying guests using cleaning items you will leave at the dwelling.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 subsection 118-115(1) | Income Tax Assessment Act 1997 section 118-145 | Income Tax Assessment Act 1997 section 118-190 | Income Tax Assessment Act 1997 Division 121

Reasons for decision: Summary: Although you are absent from your dwelling during your period of travel, the dwelling has not ceased to be your main residence. As such, section 118-145 does not apply when you are absent and you use the dwelling for the purposes of producing assessable income. | Detailed Reasoning - Detailed reasoning: Section 118-110 establishes the basic case that a capital gain or loss you make from a capital gains tax (CGT) event that happens to a CGT asset that is a dwelling is disregarded to the extent you are an individual and the dwelling was you main residence throughout your ownership period. The meaning of dwelling is set out in subsection 118-115(1) to be: A dwelling includes: (a) a unit of accommodation that: (i) is a building or is contained in a building; and (ii) consists wholly or mainly of residential accommodation; and (b) a unit of accommodation that is a caravan, houseboat or other mobile home; and (c) any land immediately under the unit of accommodation. The unit you own and occupy as your home meets the definition of a dwelling in paragraph 118-115(1)(a). Having considered relevant factors, including those set out in the Guide to capital gains tax , it is considered the dwelling is your main residence for capital gains tax purposes. You state that you plan to be absent from the dwelling for a period of up to one month, and during that period of absence, you propose to use the dwelling for the purpose of producing assessable income by way of advertisement for short stay rental. Section 118-145 deals with the effect of absences from a dwelling that is your main residence. Relevantly, subsection 118-145(1) states: If a *dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence. Subsection 118-145(2) states: If you use the part of the *dwelling that was your main residence for the *purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence. Subsection 118-145(3) states: If you do not use the *dwelling for that purpose, you can treat it as your main residence under this section indefinitely. The term ‘ceases’ in subsection 118-145(1) is not defined in the Act. When section 118-145 was introduced, the EM commented on its relationship to the prior subsection 160ZZQ(11) of the Income Tax Assessment Act 1936 and noted: | Detailed Reasoning - Section 118-145 Absences: The 1936 Act in some cases allows an individual to continue to treat their dwelling as their main residence after they have moved out. If the dwelling is used for the purpose of producing assessable income, this is limited to six years. | Detailed Reasoning - Change: Provide that, if a dwelling is used to produce assessable income, the maximum period for it to be treated as a main residence while so used is six years. The rule does not specify when this period commences or ends. | Detailed Reasoning - Explanation: Under the 1936 Act, if a dwelling ceases to be a main residence, it can continue to be treated as one by election. If it is not used to produce assessable income, this can continue indefinitely. If it is used to produce assessable income, a six year limit applies commencing when the dwelling begins to be so used. This can give an anomalous result when, during an absence, there is also a period when the dwelling is vacant or otherwise not used to produce assessable income. Examples accompanying both section 118-145 and the EM deal with absences of periods of significant length of time that result from the owner moving out of their home. This is particularly the case in examples revolving around owners who move out of their dwelling for work purposes – e.g. where posted away from home for significant periods. As a general rule, a dwelling ceases to be your main residence once you stop living in it (i.e. when you move out). To determine whether a dwelling that was a main residence has ceased to be one, we give consideration to the obverse statement to those described in our Guide to capital gains tax 2018 about when a dwelling will be considered your main residence. We consider the following are factors relevant, though not exhaustive, to the question of whether a dwelling has ceased to be your main residence include: ● the length of absence from the dwelling ● whether you and your family no longer live in it ● whether you have moved your personal belongings out of it ● it is no longer the address your mail is delivered to ● it is no longer your address on the electoral roll ● services are no longer connected (for example phone, gas or electricity) ● the purpose of your absence and your intention to reoccupy the dwelling following your absence Whether a dwelling has ceased to be your main residence is not determined based on one or more factors alone and the weight given to each varies depending on individual circumstances. These factors, and their consideration when making such a determination, have been acknowledged and accepted in administrative decisions dealing with the concept of main residence (see Case 26/93 93 ATC 320; Erdelyi & Anor v FC of T 2007 ATC 2214; Summers v FC of T 2008 ATC 10-007). If not for the affirmative making of a choice to treat the dwelling as your main residence during your planned absence pursuant to the operation of section 118-145, section 118-190 operates such that you would be entitled to a partial main residence exemption only reflecting the period the dwelling was used for the purpose of producing assessable income. Section 118-190 provides the rules regarding the granting of a partial exemption where a dwelling is used for producing assessable income. Relevantly: | Detailed Reasoning - 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. | Detailed Reasoning - 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. | Detailed Reasoning - 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. While the Act is silent on the specifics of what constitutes cessation for purposes of section 118-145, the examples it uses and the language of the EM suggests it is intended to be more than any mere absence from your dwelling. It is this offices view it is intended to be something more, of longer duration or effect, though not requiring a permanent vacation of the dwelling in question. You propose to be absent from your dwelling for a period of either a few weeks, or no more than one month, while you travel for work and private purposes. While the upper limit of your period of absence (one month) is not an insignificant period of time, we do not consider it is material in this instance to support that your dwelling has ceased to be your main residence during that period of absence. You reside alone in the dwelling, and as the sole occupant, you could more readily leave and make another place your home, as compared to a scenario where family members resided with you and remained while you travelled. However, during your absence, although you take the personal possessions that are significant and necessary for the purpose of your travel plans with you in your motor home, you do not do anything more to sever your connection to your home. That is, you maintain it as the relevant address to receive your personal mail, you maintain it as your recorded address on the electoral roll, you maintain your service connections etc. You maintain the dwelling as your home and base from which you conduct your business. It remains so whilst you are travelling, as you have a genuine expectation of returning to it either at the conclusion of your travel, or if not earlier, while travelling from city A to city D. Your absence from your home is in a sense merely momentary or short-lived. It is not your intent to establish your motor home as your usual place of home, i.e. to act as an itinerant traveller of no fixed abode. On this view, your planned absence does not amount to a cessation, and as a result section 118-145 does not apply such that you do not have the choice available to you to choose to treat the dwelling as your main residence during the period you use it for the purpose of producing assessable income. Consequently, while you are absent and using the dwelling for the purpose of producing assessable income, you will be entitled to only a partial exemption from capital gains tax pursuant to section 118-190. Division 121 sets out the record keeping obligations of taxpayers who have CGT events happen in relation to assets they own. Broadly, subsection 121-20(1) requires: You must keep records of every act, transaction, event or circumstance that can reasonably be expected to be relevant to working out whether you have made a *capital gain or *capital loss from a *CGT event. (It does not matter whether the CGT event has already happened or may happen in the future.) However, subsection 121-30 provides an exception to the general rule: You do not need to keep records under section 121-20 if: (a) for each *CGT event (if any) that has happened such that the records are relevant (or could reasonably be expected to be relevant) to working out whether you have made a *capital gain or *capital loss from the event; and (b) for each *CGT event that may happen in the future such that the records could reasonably be expected to be relevant to working out whether you might make a *capital gain or *capital loss from the event; any capital gain or capital loss you made (or might make) from it is to be (or would be) disregarded, except because of a roll-over. It follows on this view, that you should retain records relevant to calculating a future capital gain in relation to the disposal of the dwelling where you have used the dwelling for the purpose of producing assessable income, except in circumstances where you have a reasonable expectation that you would be exempt from a capital gain because of the main residence exemption.