Private ruling: Capital gains tax - main residence - absence choice - dependent child with different residence
Date of advice: 22 October 2015
Published: October 2015
Ruling period: Income year ending 30 June 2017.
Date scheme commenced: 1 July 2015.

Ruling: Q1: Will you be eligible to fully disregard the capital gain made on the disposal of your ownership interest in the property? | A1: Yes.

Relevant facts and circumstances: You and your spouse entered into a contract to purchase a property (the Australian dwelling) after 20 September 1985, with settlement occurring during the following month. You and your family, including your children, were granted Australian Resident Status. The Australian dwelling was purchased with the intention of it being lived in as the family home, with your children attending the local school and university. Your two eldest children had moved into the Australian dwelling before settlement had occurred, with the eldest child being over 18 years of age and the other child being under 18 years of age. Your other children moved into the Australian dwelling in subsequent years. You and your spouse's home country, is overseas, where you had owned a property (the overseas residence) which was your family home. You and your spouse had sold the overseas residence to your eldest child. However, the overseas residence continues to be used as your family home whenever you are overseas. You travelled to Australia on numerous occasions from the year in which settlement occurred on the Australian dwelling until the year in which you moved into the Australian dwelling, around 15 years after the Australian dwelling had been purchased. The period of time you stayed in Australia during each year was less than four months. For the purposes of this private ruling: • the property will not be used to produce assessable income • you and your spouse did not have another residence in Australia during the period covered by the private ruling • you will dispose of your ownership interest in the property during the period covered by this private ruling; and • you and your spouse have made the choice to treat the dwelling as your main residence at any time that such a choice is available to you under the main residence provisions.

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 118-175

Reasons for decision: Detailed Reasoning - Main residence exemption: Generally, any capital gain or capital loss that you make on the sale of a dwelling that was your main residence for your entire ownership period is disregarded. Whether a dwelling is an individual's main residence depends on the facts of each case. The factors to be taken into account include the length of time the individual lives in the dwelling, the place of residence of the individual's family, and whether the individual has moved their personal belongings into the dwelling. | Detailed Reasoning - Dependent children having different main residence: As a general rule, a family is entitled to the main residence exemption in respect of only one dwelling at a time. The use of a dwelling as the main residence of your children can present you with the opportunity to choose to treat the dwelling occupied by your dependent children as your main residence provided other conditions are also met. Where a dwelling is your main residence at a particular time and another dwelling is the main residence of your dependent child, whichever dwelling is nominated by you is deemed to be the main residence of you and the dependent child. No other dwelling can be treated as your main residence while this choice is in effect. A "dependent child" for this purpose means a child under the age of 18 years who is dependent upon you for economic support. | Detailed Reasoning - Continuing main residence status after dwelling ceases to be your main residence: In some cases, you can choose to continue to treat a dwelling as your main residence after it ceases to be your main residence, known as the "absence choice". You cannot make the absence choice for a period before a dwelling first becomes your main residence. If a taxpayer chooses to apply the absence choice, no other dwelling can be treated as the taxpayer's main residence, unless the taxpayer is moving from one main residence to another. If you do not use the dwelling to produce assessable income, such as renting it out, you can choose to treat it as your main residence for an unlimited period. The absence choice needs to be made only for the income year that the capital gains tax (CGT) event happens to the dwelling, such as the income year in which the dwelling is sold. Application to your situation You and your spouse purchased the Australian dwelling after 20 September 1985. At that time you also owned a residence located overseas (the overseas residence), which was your family home. You sold the overseas residence to one of your children around six years after you had purchased the Australian dwelling, however it is still being used as your family home when you overseas. You arrived in Australia and stayed for short periods of time in the Australian dwelling from the year in which settlement occurred, until you moved into the Australian dwelling around 15 years later. Based on the information you have provided it is viewed that you do not meet the conditions to be an Australian resident for taxation purposes and that the overseas residence was your common law main residence. You had visited your children in the Australian dwelling on numerous occasions, however while you had stayed in the Australian dwelling during your visits to Australia, it had not become your common law main residence until you had moved into the Australian dwelling around 15 years after you had purchased it. Therefore, until you moved into the Australian dwelling, it cannot be viewed that the Australian dwelling was your main residence for CGT purposes. However, your children had resided in the Australian dwelling, with your eldest children moving into the Australian dwelling prior to settlement occurring. One of the children had was over 18 years old when they had moved into the Australian dwelling, however your other child was under 18 years old at the time of moving into the Australian dwelling, and had not turned 18 years of age until around four months after settlement on the sale of the Australian dwelling had occurred. For the period that you and your dependent child under 18 years of age were living in separate dwellings, you were required to choose a particular dwelling as your main residence of you and your dependent children. You have chosen your dependent child's residence as your main residence. That is for the period that the Australian dwelling was your dependent child's residence, commencing from the date of settlement on the purchase of the Australian dwelling occurred, until they turned 18 years of age. When your dependent child turned 18 years of age, the Australian dwelling ceased to be your main residence. However, you have made the absence choice to continue treating the Australian dwelling as your main residence from the date your dependent child turned 18 years of age. As you will not use the Australian dwelling to produce assessable income, you can continue to make the absence choice to treat the Australian dwelling as your main residence indefinitely. Therefore, when you and your spouse dispose of your ownership interests to your child, the Australian dwelling will be viewed as having been your main residence for the whole of your ownership period as a result of making the choices outlined above. Accordingly, any capital gain made on the disposal of your ownership interest in the Australian dwelling can be disregarded.