Private ruling: Subject
Published: August 2017
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

Ruling: Q1: Are you entitled to apply the six year absence rule under section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of your dwelling? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-135 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Section 118-185

Reasons for decision: Summary: You are able to apply the six year absence rule under section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of the dwelling. | Detailed Reasoning - Detailed reasoning: Non-residents are only subject to capital gains tax (CGT) when a CGT event happens to taxable Australian property. Taxable Australian property is defined as real property situated in Australia. Ordinarily, a non-resident taxpayer who makes a capital gain on the sale of taxable Australian property would include the capital gain in assessable income. However, the main residence exemption may apply to disregard any CGT applicable on disposal of the property. Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) contains the CGT main residence exemption rules. Section 118-110 of the ITAA 1997 provides that an individual can disregard a capital gain that arises from disposing of his or her main residence if: The dwelling was your home for the whole of your ownership period The dwelling was not used to produce assessable income, and Any land on which the dwelling is situated is not more than two hectares. Section 118-135 of the ITAA 1997 provides that if a dwelling becomes your main residence at the time it was first possible for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence. A dwelling is no longer your main residence once you stop living in it. However, in some cases section 118-145 of the ITAA 1997 extends the main residence exemption. In these cases, you can choose to treat your dwelling as your main residence during your absence after you have first occupied it as your main residence and subsequently moved out. When you move out of the dwelling you can choose to continue treat it as your main residence while you use it to produce income for up to six years after you cease living in it. You are entitled to another maximum period of six years each time the dwelling again becomes, and then ceases to be, your main residence (subsection 118-145(2) of the ITAA 1997). If you make this choice, you cannot treat any other dwelling as your main residence for that period (subsection 118-145(4) of the ITAA 1997). If you do not use the dwelling to produce income, you can choose to continue to treat the dwelling as your main residence for exemption purposes for an unlimited period after you cease living in it (subsection 118-145(3) of the ITAA 1997). | Detailed Reasoning - Application to your circumstances: You acquired the dwelling after 20 September 1985 which you initially rented out. Your circumstances changed around 12 months after purchase which then allowed you to move into the dwelling where it became your main residence. After a number of years living in the dwelling you moved out of the dwelling and rented it out again. From the time you moved out of your dwelling you can make the choice to continue to treat it as your main residence for a period of up to six years. As you have rented the dwelling for longer than six years any time outside the six year period will be subject to CGT and will need to be apportioned between the main residence and non-main residence periods. As you did not treat any other residence as your main residence for the period you can apply the six year absence rule to the sale of your dwelling.

Capital Gains Tax - main residence exemption - six year absence rule. | Relevant facts: You purchased the dwelling after 20 September 1985. | You rented the dwelling out for around 12 months from the time you purchased it and then you moved into the dwelling where you treated it as your main residence. | You moved out of the dwelling a number of years later and again rented it out until the present time. | You did not treat any other dwelling as your main residence. | You are currently a non-resident for taxation purposes and have been overseas for an extended period of time.