Private ruling: Main residence exemption
Published: May 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is a capital gain or loss that you make on the disposal of your property disregarded? No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Section 116-20. | Income Tax Assessment Act 1997 Section 110-25. | Income Tax Assessment Act 1997 Section 118-110. | Income Tax Assessment Act 1997 Section 855-10. | International Tax Agreements Act 1953 Schedule 9

Reasons for decision: Summary: You make a capital gain or capital loss as a result of a capital gains tax (CGT) event happening. Australian residents make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world. Subdivision 855A of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the circumstances whereby a capital gain may be disregarded by a foreign resident. Specifically, under section 855-10(1) of the ITAA 1997 a capital gain or loss from a CGT event is disregarded if you are a foreign resident just before the CGT event happens and the CGT event happens in relation to a CGT asset that is not taxable Australian property. In determining liability to Australian tax on income it is necessary to consider not only the Australian income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates this Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions). Schedule # to the Agreements Act contains the double tax agreement between Australia and country A (the country A Agreement). This Agreement operates to avoid the double taxation of income received by Australian and country A residents. Article # of the country A Agreement provides that income from real property situated in Australia may be taxed in Australia. If you as a non-resident sell an asset that is taxable Australian property, then the capital gains provisions do apply. Your property is taxable Australian property; therefore the capital gains provisions will be applicable when it is sold if the property is not considered to be your main residence. You make a capital gain if the capital proceeds from the disposal are more than the assets cost base. You make a capital loss if the capital proceeds are less than the assets reduced cost base. Capital proceeds is the term used to describe the amount of money that you receive as a result of a CGT event occurring. Therefore the amount of money that you receive as a result of the sale of your property is the capital proceeds. Cost base and reduced cost base are the terms used to describe the amount you paid to acquire the home plus certain other expenses you may have incurred while owning it. Generally, you disregard any capital gain or capital loss realised on the disposal of a dwelling that was your main residence for your entire ownership period. Whether a dwelling is considered a persons' main residence is based on fact and is examined on a case by case basis. The factors considered are as follows: · The length of time the taxpayer has lived in the dwelling - you reside in the apartment for about one to two weeks ever year to two years, · the place of residence of the taxpayer's family - you have children living in Australia, · whether the taxpayer has moved his or her personal belongings into the dwelling - you have moved personal belongings into the dwelling but the majority of your personal belongings are in country A, · the address to which the taxpayer has his or her mail delivered - you have your mail delivered to the apartment in Australia, · the taxpayer's address on the electoral roll - this does not apply to you as you are not an Australian resident, · the connection of services, such as telephone, gas and electricity - all services are connected in your name except for the phone bill which is in your son's name, and · the taxpayer's intention in occupying the dwelling. - you reside in the property when you visit Australia. In your situation, the property was not your main residence during any time of your ownership period as you lived in country A and you used this house for occasional visits to Australia. We acknowledge that you stayed in the house for several weeks after the purchase; however, you did not establish the property as your main residence during this time based on the above factors. Therefore, no exemption is available. As you have not established the property as your main residence the main residence absence rule does not apply to your circumstances. As the apartment was not your main residence any capital gain or loss you make on the disposal of the apartment will not be disregarded.

Relevant facts: You are a resident of Country A for tax purposes. | You purchased an apartment in Australia before 2000. | You have never owned other properties. | Your spouse does not own property in Australia or anywhere else. | You have never used the apartment to produce income. | You first occupied the apartment immediately after purchase for a period of several weeks. | You have moved some personal belongings into the apartment; this includes furnishings and a television. | You have connected all services in your name except for the telephone which is in your son's name. | You estimate that you have resided in the apartment for less than 20 weeks during your ownership of it. | When you are not residing at the apartment your family members in Australia live there rent free. | The land on which the dwelling is situated is less than 2 hectares.