Private ruling: Capital gains tax - absence choice
Date of advice: 19 September 2025
Published: 10 November 2025
Ruling period: Year ended 30 July 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow an extension of time under section 103-25 of the Income Tax Assessment Act 1997 (ITAA 1997) for you to exercise the absence choice in accordance with section 118-145 of the ITAA 1997? | A1: Yes | Q2: Can you exercise the absence choice under section 118-145 of the ITAA 1997 for Property A from the time you moved out until sale of the property? | A2: Yes

Relevant facts and circumstances: Person A and Person B (you) purchased a property(Property A) on around Date one. You lived in Property A until Date 2. You purchased a property (Property B) on Date 3. At the time of purchase of Property B, you did not discuss the availability of the capital gains tax (CGT) exemption under the '6 year rule' with your tax agent. Your tax agent advised you to obtain a market valuation for Property A when you moved out. On Date 4, you received a market valuation for Property A. On Date 4, you moved into Property B. You rented out Property A from Date 4 until the time of sale. Property A was sold in 20XX. You lodged your income tax return for the income year ending 30 June 20XX including a capital gain on disposal of Property A. You set aside a portion of the sale proceeds to pay the respective capital gains tax at the relevant time. After you received the sale proceeds from Property A, you initiated your own research on capital gains tax in order to estimate the amount of tax payable once you had lodged the income tax return for the 20XX year. When researching the topic, you came across the 6 year rule. You contacted your tax agent and raised the 6 year rule and asked whether it could apply to your circumstances. At the time, you were incorrectly advised that it would not apply to your circumstances. You therefore proceeded on the basis that the 6-year rule did not apply to you. Following lodgement of your 20XX return, on Date 5, you were talking with some friends and the issue of CGT payable on the sale of Property A came up. They listened to your explanation and advised that they thought the 6 year rule should have applied and suggested you contact your tax agent to discuss it. You immediately contacted your tax agent who reviewed your circumstances in more detail. After reviewing your circumstances, your tax agent agreed with you that the 6-year rule could have been applied.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 103-25 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-140 | Income Tax Assessment Act 1997 section 118-145

Reasons for decision: Summary: The Commissioner will allow an extension of time under section 103-25 of the Income Tax Assessment Act 1997 (ITAA 1997) for you to exercise the absence choice in accordance with section 118-145 of the ITAA 1997. | Detailed Reasoning - CGT event A1: Subsection 104-10(1) of the ITAA 1997 provides that 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. | Detailed Reasoning - Main residence exemption: Subsection 118-110(1) of the ITAA 1997 provides that a capital gain or loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling is disregarded if: (a) you are an individual; and (b) the dwelling was your main residence throughout your ownership period; and (c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person The main residence exemption can be extended by using certain choices available in the income tax legislation. One of these choices is the absence choice. | Detailed Reasoning - Absence choice: Subsection 118-145(1) of the ITAA 1997 provides that if a dwelling ceases to be your main residence, you may choose to continue to treat it as your main residence. Subsection 118-145(2) of the ITAA 1997 provides that if you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under the section while you use it for that purpose is 6 years. Subsection 118-145(4) of the ITAA 1997 provides that if you make the choice, you cannot treat any other dwelling as your main residence, except if section 118-140 (about changing main residences) applies. | Detailed Reasoning - Choices: Part 3-1 and Part 3-3 of the ITAA 1997 relate to capital gains and losses - general and special topics. Section 118-145 of the ITAA 1997 is located in Part 3-1 of the ITAA 1997. Subsection 103-25 (1) of the ITAA 1997 provides that a choice you make under Part 3-1 or Part 3-3 of the ITAA 1997 must be made: (a) by the day you lodge your income tax return for the income year in which the relevant capital gains tax (CGT) event happened; or (b) within a further time allowed by the Commissioner. Subsection 103-25(2) of the ITAA 1997 provides that the way you prepare your income tax return is sufficient evidence of making the choice. However, as outlined in ATO Interpretative Decision ATO ID 2003/103 Capital Gains Tax Capital gains tax: Choice and the small business roll-over , a taxpayer who did not consider the CGT concessions and accordingly included a capital gain in their income tax return has not made a choice and can, if the Commissioner allows further time, later make a choice for a CGT concession and amend their tax return to reduce or disregard the capital gain. | Detailed Reasoning - Application to your circumstances: As you were advised that the absence choice could not apply on the sale of Property A, you included a capital gain from the sale of the property in your income tax return. Following a later discussion you had with friends, you made further enquiries with your tax agent. Your agent advised you that you could have exercised the absence choice on the sale of Property A. As you were not aware that you could exercise the absence choice by the time of lodging your tax return, it cannot be said that you made a choice. Therefore, the Commissioner will allow extra time for you to make the absence choice. | Summary: You can exercise the absence choice under section 118-145 of the ITAA 1997 for Property A from the time you moved out until the sale of the property. | Detailed Reasoning - Detailed reasoning: As outlined in Question 1, subsection 118-145(1) of the ITAA 1997 provides that if a dwelling ceases to be your main residence, you may choose to continue to treat it as your main residence provided you meet the relevant conditions. The choice can be made each time you move out of your main residence and commence renting out the dwelling. Where you use the dwelling to produce assessable income, you can choose to treat the dwelling as your main residence for up to 6 years after you stop living in it. With the exception of section 118-140 of the ITAA 1997, you cannot treat any other dwelling as your main residence for that period. If the application of the absence choice means that the property is your main residence for all of your ownership period, you can disregard any capital gain or loss on the disposal of the property. | Detailed Reasoning - Application to your circumstances: You moved into Property A around Date 1. On Date 4, you moved out of Property A into Property B. At that time, you commenced using Property A to produce assessable income. As you used Property A for income producing purposes, the maximum period you can exercise the absence choice for in one period is 6 years. You meet the conditions in section 118-45 of the ITAA 1997 which allow you to exercise the absence choice from the time you moved out of Property A until the time of sale. Therefore, you can exercise the absence choice to extend the main residence exemption so that the property will be your main residence for the period from when you moved out until the time of sale.