Private ruling: Capital gains tax
Published: November 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Are you required to pay capital gains tax on the overseas property? | Yes.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You purchased a property overseas. You did not move into the property and live in it. You intended it to be your main residence and intended on moving into the property after you had secured a job which you envisaged would take 12-18 months. You rented the property out as soon as you purchased it. Your property was damaged by a natural disaster. Your property was not liveable. You received payment from the insurance company for the property which exceeded the cost base and this resulted in a capital gain.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 118-10 | Income Tax Assessment Act 1997 Section 118-135

Reasons for decision: Detailed Reasoning - Capital gains tax: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 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. A taxpayer makes a capital gain if a their capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if a taxpayer received more for an asset than they paid for it. A taxpayer makes a capital loss if their reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset. Capital gains tax is not a separate tax, it forms part of a taxpayer's assessable income and is taxed at each taxpayer's marginal tax rate. | Detailed Reasoning - CGT - main residence: Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income. Whether a dwelling is a taxpayer's sole or principal residence is an issue which depends on the facts in each case. Some factors may include, but are not limited to: • the length of time the taxpayer has lived in the dwelling • the place of residence of the taxpayers family • whether the taxpayer has moved his or her personal belongings into the dwelling • the address to which the taxpayer has his or her mail delivered • the taxpayers address on the Electoral Roll • the connection of services such as telephone, gas and electricity • the taxpayers intention in occupying the dwelling A mere intention to occupy a dwelling as your main residence without actually doing so is not sufficient to get the exemption. | Detailed Reasoning - Moving into the dwelling: To establish a dwelling as a main residence you must move in as soon as practicable. The term as soon as practicable is used in section 118-135 of the ITAA 1997 to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the property became your main residence on the date you acquired it (that is, you would have to physically move in on that day). In your case you never moved into property and established it as your main residence. You purchased the property and you commenced renting it out straight away. We acknowledge that you intended the property to be your main residence and you intended on making it your home. However, as stated above a mere intention to move into a property without actually doing so does not give you an exemption to CGT. Accordingly you are required to declare the capital gain in your tax return.