Private ruling: Capital gains tax
Published: July 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and Answer | Are you entitled to use the 6 year absence rule to disregard any capital gain or loss on disposal of your dwelling? | Yes.

Relevant facts and circumstances: You purchased the dwelling. It was your main residence from this time, except for periods when it was rented; for less than 6 years each time. You moved back into the dwelling as your main residence after each period that the dwelling was rented. You were the sole owner for a rental period. You were married. The dwelling was transferred to joint ownership with your spouse before being rented again. Prior to your marriage, your spouse had a dwelling which was their main residence. This dwelling was sold and it ceased to be their main residence. Your spouse then made your dwelling their main residence, when their name was added to the title. The dwelling was sold.

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 118-145

Reasons for decision: Detailed Reasoning - Capital gains tax - general: A taxpayer makes a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. In your case, the dwelling that you owned was purchased after September 1985 and is, therefore, a CGT asset. | Detailed Reasoning - Disposal of CGT assets and CGT event A1: CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. In your case, the dwelling that you owned is a CGT asset and a CGT event A1 happened to it when you stopped being its owner, that is, when it was sold. | Detailed Reasoning - Main residence exemption: The main residence exemption under subdivision 118-B of the ITAA 1997 may allow a taxpayer to disregard all or part of any capital gain or capital loss they made from a CGT event that happens to their ownership interest in a dwelling where the dwelling was their main residence. The main residence exemption allows the capital gain or loss from the disposal of a dwelling to be disregarded for CGT purposes if the taxpayer is an individual, the dwelling was the taxpayer's main residence throughout the ownership period, the land on which the dwelling is situated on and adjacent to is less than 2 hectares, and the dwelling was not used to produce assessable income. In your case, the dwelling that you owned has been your main residence throughout the ownership period. However, the dwelling was used to produce assessable income so we must consider the absence rule. | Detailed Reasoning - Absence rule: Under section 118-145 of the ITAA 1997, the absence rule allows a taxpayer to choose to treat a dwelling as their main residence even though they no longer live in it. They can do so for up to 6 years after they vacate the dwelling. This choice needs to be made only for the income year that the CGT event happens to the dwelling for example, the year that a taxpayer enters into a contract to sell it. If a taxpayer makes this choice, they cannot treat any other dwelling as their main residence for that period. In your case, you bought a dwelling sold it. It was your main residence throughout the ownership period. You moved out of the dwelling when you rented the dwelling out to tenants for periods of less than 6 years each. You then moved back into the dwelling as your main residence after each period that the dwelling was rented. During a rental period you were the sole owner and during another rental period the dwelling was owned jointly with your spouse. Throughout the whole period of ownership, neither you nor your spouse owned any other dwelling and had no other main residence. Therefore, you are entitled to disregard any capital gain or loss when you dispose of the dwelling because you did not rent the dwelling for periods of greater than 6 year limit specified under section 118-145 of the ITAA 1997.