Private ruling: Capital gains tax
Published: June 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Questions and answers: | Are you entitled to disregard in full any capital gain or capital loss that occurs on disposing of your main residence under the six year absence rules? | Yes.

Relevant facts and circumstances: You purchased a house in your own name after 20 September 1985. The land size of the property is not more than two hectares. This home was occupied continuously by you as your principal place of residence from date of acquisition until you moved overseas. You rented your home out for a period of less than six years. During your time overseas you were still classed as an Australian resident. You moved back to Australia and back into your home and continued to live there until you moved to another part of the State and your home was once again rented out. The house is still currently being rented out at this present time. When you last moved out you requested a property agent complete an appraisal on the house to determine its market value at this time. During both periods of rental activity you are electing to continue to call the property your main residence. You are putting the house on the market to sell and plan to sell within six years from the date you rented the property for the second time.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-145

Reasons for decision: Summary: All references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated. | Detailed Reasoning - Capital gains tax: Section 102-20 advises that capital gains tax (CGT) is incurred when a CGT event takes place and you make either a capital gain or a capital loss as a result. A capital gain is included in your annual income tax return. It is not a separate tax, merely a component of your income tax. Your net capital gain is added to your annual income and you are taxed at your marginal tax rate. The most common CGT event is CGT event A1. Section 104-10 explains that this event occurs whenever there is a change of ownership for a CGT asset, for example, when you dispose of an asset to someone else. When you sell your property there will be a change of ownership and CGT event A1 will occur. Division 118 sets out various exemptions for many capital gains and losses. Subdivision 118-B explains that you can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence. | Detailed Reasoning - Main residence exemption: You can disregard a capital gain or capital loss from a CGT event that happens to a property that is your main residence if: · you are an individual (not a company or a trust); · the property was your main residence throughout your ownership period; · it was not used for the purpose of producing assessable income; · it did not pass to you through a trust or a deceased estate; and · the land size of the property is less than two hectares. The property in question was initially your main residence until you moved overseas and rented it out. The land size is less than two hectares and you purchased the property in your own name; it was not acquired through a deceased estate. | Detailed Reasoning - Absence from main residence: Section 118-145 provides an option where a property ceases to be your main residence, under certain circumstances you can choose to have it treated as your main residence even though you no longer live in it. If you make this choice, no other property can be treated as your main residence for that same period. Choosing this option means that you will be entitled to disregard any capital gain or capital loss upon disposal. If you rent the property out, the maximum length of time you can choose to have it treated as your main residence is six years after you cease living in it. You are entitled to another maximum period of six years each time the property again becomes, and then ceases to be your main residence. You have elected to continue to treat the property as your main residence after you ceased to occupy it when you moved overseas. You rented the property out before 20 August 1996 for a period of less than six years. When you returned you moved back into the dwelling and established it as your principal place of residence once more. As the period you were absent and rented the property out in this instance was less than six years, you are eligible to utilise the absence rule and you are able to disregard any capital gain or capital loss you make on the disposal of the property for this period. You vacated the property and moved to another part of the State. You have rented the dwelling out again and it continues to produce assessable income for you. You are placing the property on the market to sell and anticipate that it will sell within the next year or so. Once again you are choosing to elect to continue to call the dwelling your main residence under the absence rule contained in section 118-145. As the rental period will not exceed six years before you dispose of it, you are entitled to disregard any capital gain or capital loss you make on the sale of your property.

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