Private ruling: Non-resident - main residence exemption
Date of advice: 4 June 2020
Published: July 2020
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner provide you a main residence exemption extension of 6 months to sell the Property? | A1: No

Relevant facts and circumstances: You are the owner of the Property. The Property was your main residence until some years ago. You now reside in another country and are a non-resident for taxation purposes. You were not advised about the amendments to section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997), preventing non-residents from accessing the main residence exemption. You are in the process of selling the Property. The sale of the Property has been delayed due to COVID-19 restrictions. You are seeking a ruling to extend the main residence exemption. You do not satisfy any of the 'life events' test as defined in subsection 118-110(5) of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 subsection 118-110(1) | Income Tax Assessment Act 1997 subsection 118-110(3) | Income Tax Assessment Act 1997 subsection 118-110(4) | Income Tax Assessment Act 1997 subsection 118-110(5) | Income tax (Transitional Provisions) Act 1997 s ubsection 118-110(1)

Reasons for decision: Summary: No,the Commissioner does not have the authority to not apply the law to your circumstances and the law does not give him any discretion in these matters. | Detailed Reasoning - Detailed reasoning: A foreign resident or temporary resident is liable to capital gains tax (CGT) when they dispose of taxable Australian property. Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the rules regarding Capital Gains Tax (CGT) main residence exemptions. Subsection 118-110(1) states that 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 a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. Before 9 May 2017, foreign residents had the same access to the main residence exemption as Australian residents. Amendments contained in subsections 118-110(3), 118-110(4) and 118-110(5) were added as part of the Reducing Pressure on Housing Affordability Measures by the Federal government of Australia in 2019. The amendments prevent individuals who are not Australian residents for tax purposes access to the main residence exemption. The exception is where the person has been a foreign resident for 6 continuous years or less and a 'life events' test (terminal illness, death or a family law matter). Subsection 118-110(3) states However, this section does not apply if, at the time the CGT event happens, you: (a) are an excluded foreign resident; or (b) are a foreign resident who does not satisfy the life events test. An 'excluded foreign resident' is defined in subsection 118-110(4) You are an excluded foreign resident, at a particular time, if: (a) you are a foreign resident at that time; and (b) the continuous period ending at that time for which you have been a foreign resident is more than 6 years. The 'life events' test is defined in subsection 118-110(5) You satisfy the life events test, at the time a CGT event happens, if: (a) the continuous period ending at that time for which you have been a foreign resident is 6 years or less; and (b) you are covered by any of the following subparagraphs: (i) you or your spouse has had a terminal medical condition that existed at any time during that period of foreign residency; (ii) your child has had a terminal medical condition that existed at any time during that period of foreign residency, and that child was under 18 years of age at least one such time; (iii) your spouse, or your child who was under 18 years of age at death, has died during that period of foreign residency; (iv) the CGT event happens because of a matter referred to in a paragraph of subsection 126-5(1) involving you and your spouse (or former spouse). To assist those who foreign residents the Australian Government introduced a grandfathering provision (subsection 118-110(1) of the Income tax (Transitional Provisions) Act 1997 (ITTPA 1997) to allow affected taxpayers to ignore a capital gain or loss from a dwelling that was their main residence. The legislation allows for foreign residents to be protected from the new legislation for the period between 7.30pm on the 9 May 2017 to on or before 30 June 2020. The original amendments were destined to begin on 30 June 2019, however in 2019 the government extended the grandfathering provision to continue until on or before 30 June 2020. Subsection 118-110(1) Income tax (Transitional Provisions) Act 1997 None of the amendments made by Part 1 of Schedule 1 to the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019 apply in relation to a capital gain or capital loss you make from a CGT event if: (a) the CGT event happens on or before 30 June 2020; and (b) you held an ownership interest in the dwelling to which the CGT event relates throughout the period: (i) starting just before 7.30 pm, by legal time in the Australian Capital Territory, on 9 May 2017; and (ii) ending just before the CGT event happens. | Detailed Reasoning - In your situation: You own the Property. The Property was your main residence until some years ago. You are a resident of another country and a foreign resident of Australia for taxation purposes. The Property is currently for sale, however the downturn in the real estate market due to COVID-19 has hampered your ability to sell the property. As a foreign resident you are liable to capital gains tax (CGT) when you dispose of taxable Australian property such as the Property. You are seeking a ruling enable the application of the main residence exemption so that you can disregard the capital gains when you sell the Property. After the 9 May 2017, Foreign residents and temporary residents only had access to the main residence exemption because of the transitional provisions that enabled foreign residence protection from the amendments. The transitional provisions apply until before or on 30 June 2020. After the 30 June 2020, the amendments apply, and foreign residents are only able claim the main residence exemption if they are · not an excluded foreign resident, and · they satisfy the 'life events' test. An excluded foreign resident is a foreign resident who has been a foreign resident continuously for more than 6 years. In your case you have been a foreign resident for less than six years. You are not an excluded foreign resident. Therefore; you would able to claim the main residence exemption if you satisfy the 'life events' test. As a foreign resident (who has been a foreign resident for less than 6 years continuously), you can be shielded from these rules if one of the following life events has occurred. · During the period as a foreign resident: - you or your spouse have (or had) a terminal medical condition; - your child (under 18 years of age) has had a terminal medical condition; - your spouse, or your child has died during that period of foreign residency; or · The property is being transferred between you and your spouse due to an Australian based family law court order or formal agreement You have indicated that none of the above situations apply to you. The Commissioner has no discretion to vary the date you can sell the Property and still qualify for a CGT main residence exemption. While there are certain well defined 'life events' that extend the exemption (as above) there is no provision for the Commissioner to add to those defined life events. Similarly, there is no provision in the amendments to give the Commissioner the discretion to vary the grandfathering date - nor is the any provisions in the existing law which would allow the Commissioner to vary that date. While you are concerned you were not individually advised of the changes in law, and the COVID-19 has prevented your sale of the property. We would point out that no taxpayer is individually notified of changes to the law. Changes to the law and announcements of changes are published on the ATO and other Government Web Sites and the change to the main residence exemption for foreign residents was also well publicised in the media both in Australia and overseas over the past few years The Government has considered the interaction between the change in law and COVID-19 restrictions and has said the following. The Government understands that Covid-19 is creating significant hardship in the Australian community, including making it difficult for foreign residents to sell their Australian property before 1 July 2020 to retain access to the capital gains tax main residence exemption under the transitional provisions. However, the Government also has an ongoing responsibility to balance both the generosity and the sustainability of concessions in the tax system and ensuring the main residence exemption is well targeted can contribute to this aim. The transitional arrangements for foreign residents have been available since 9 May 2017 when the Government first announced the changes. Since that time, the Australian Taxation Office has been raising awareness of the changes among intermediaries who work with foreign residents, including industry associations, tax agents, solicitors, conveyancers and real estate agents. We understand that these intermediaries have been informing their clients of the changes so that necessary action can be taken. The transitional arrangement period was also extended by twelve months to 30 June 2020 when the changes were legislated in December 2019 to provide foreign residents with additional time to plan accordingly. Most states have also relaxed restrictions on real estate operations, with real estate agents and property vendors now able to hold open house property inspections and on-site auctions while adhering to the Covid-19 safety measures. In summary the Commissioner does not have the authority to not apply the law to your circumstances and the law does not give him any discretion in these matters.