Private ruling: Capital gain tax-main residence-dependent child
Date of advice: 5 May 2017
Published: September 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: September 201X

Ruling: Q1: Will you be eligible for a partial main residence exemption on the disposal of Property B? | A1: Yes | Q2: Are you entitled to any CGT discount in respect to the disposal of property B? | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Both you and your spouse are Australian permanent resident visa holders. You ceased being a resident of Australia for taxation purposes in the 2009-10 income year. You relocated overseas at the in 200Y after not being able to obtain gainful employment. You work and live in overseas. Your spouse purchased Property A in 200X. You and your spouse resided in this house a number of years. After this time, Property A was rented until it was sold sometime during 201Z. Your spouse claimed a full main residence exemption in relation to Property A. You purchased Property B sometime during 201X. You and your spouse have two children. Child X boarding school in Australia, and in 201Z moved into property B. Child X was under 18 and your dependent at the time they moved into Property B, and continues to reside at property B. Child Y moved into property B in 20ZZ. Child Y was under 18 and your dependent when they moved into property B. Child B continues to reside at property B, and is still under 18 and your dependent. Following settlement of the purchase of Property B, the residence has been occupied by you, other family members and tenants during the following periods: ● The property was unoccupied for a short time after settlement. ● You and your family occupied the residence for a short period in 20YY. ● The property was rented until sometime in 201Z. ● You have resided in Property B for short periods of time when you visited your family in Australia. ● All family possessions are contained in Property B. Assumption(s) For the purpose of this private ruling: ● You will dispose of Property B during the period covered by this private ruling. ● You will make the choice to treat Property B as you and your family's main residence during any period that is permissible. ● You will make a capital gain from the disposal of Property B. ● You will obtain a valuation for Property B as at mid 20YY. ● The valuation will show the market value of Property B to be higher than its cost base, and you will choose for subsection 115-115(4) of the Income Tax Assessment Act 1997 (ITAA 1997) to apply to the disposal of Property B.

Relevant legislative provisions: Section 104-10 Income Tax Assessment Act 1997 | Section 115-115 Income Tax Assessment Act 1997 | Section 118-140 Income Tax Assessment Act 1997 | Section 118-145 Income Tax Assessment Act 1997 | Section 118-170 Income Tax Assessment Act 1997 | Section 118-175 Income Tax Assessment Act 1997 | Section 118-185 Income Tax Assessment Act 1997

Reasons for decision: Summary: Summary You are entitled to a partial main residence exemption on the sale of the Property B from when your dependent child A established the dwelling as their main residence. Detailed reasoning 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. You may be entitled to a partial main residence exemption if you are not entitled to the full exemption mentioned above. Whether a dwelling is your main residence depends on the facts of each case. The factors to be taken into account include the length of time you have lived in the dwelling, the place of residence of your family, and whether you have moved your personal belongings into the dwelling. | Detailed Reasoning - Spouses having different main residence: If you and your spouse have different homes for a period, you and your spouse must either: ● Choose one of the dwellings as the main residence of both of you during the period you are both living apart or ● Nominate the different dwellings as your main residence for the period. If you nominate different homes for the period and you own 50% or less of the home you have nominated, you qualify for an exemption for your share. If you own more than 50%, your share is exempt for half the period you and your spouse had different homes. This rule applies to each home the spouses own, whether they have sole ownership or own the home jointly (either as joint tenants or tenants in common). | Detailed Reasoning - Continuing main residence status after the dwelling ceases to be your main residence: As a general rule, a dwelling is no longer your main residence once you stop living in it. However in some cases you may choose to have a dwelling treated as your main residence for capital gains tax (CGT) purposes even though you no longer live in it. This is known as making an absence choice. If you use your dwelling to produce income you can make an absence choice for a period of up to six years after you cease living in the dwelling. If you do not use the dwelling to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you cease living in it. This choice needs to be made only for the income year that the CGT event happens to the dwelling, for example the year that you enter into a contract to sell it. In your case your spouse purchased the Property A, which was their main residence until sometime in 201X. This property was then rented until it was sold sometime in 201Z. Your spouse has claimed the full main residence on this dwelling for the entire ownership period. This means that: ● An absence choice was made for the Property A while it was rented until it was sold, ● As you are only entitled to one main residence exemption per family, you have already received a main residence exemption up until the time property A was sold. You cannot treat the Property B as your main residence prior to this date. | Detailed Reasoning - Dependent child having a different main residence to you: 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 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. In your case you resided overseas from 20XX. You made regular short visits to Australia to see your family, and you stayed at Property B during these visits. Following your visits to Australia, you returned to your residence overseas. It cannot be viewed that you had abandoned your dwelling overseas when you travelled to Australia. Therefore, Property B cannot be viewed as your main residence for CGT purposes. However, your dependent children resided in Property B. Child X moved into Property B sometime in 201Z. Child X was under 18 years of age when they moved into the dwelling, and was your dependant. Child Y moved into the dwelling during 20ZZ. Child Y is still under 18 years of age and is still your dependent at this time. You have chosen the Property B as your main residence. Therefore, when you dispose of your ownership interest in the Property B, it will be viewed as having been your main residence from the time it was established as the main residence of Child X You calculate your partial CGT main residence exemption by applying the formula: Total Capital gain x Non-main residence days Total ownership days | Detailed Reasoning - Question 2: Summary As you purchased your property prior to mid 201Y and were a foreign resident on this day you may choose to apply the market value method of calculating your discount capital gain. Detailed reasoning The CGT discount does not apply to discount capital gains made by foreign residents after mid 201Y. However, the discount continues to apply to the portion of the discount capital gain of a foreign or temporary resident individual that accrued up until mid 201Y. The only calculation available to you that may produce a discount percentage is to choose the market value method. This applies where: ● the asset was acquired before mid 201Y, ● you were a foreign or temporary resident on mid 201Y, ● the most recent acquisition of the CGT asset happened on or before mid 201Y, ● the CGT asset's market value on mid 201Y exceeds the amount that was its cost base at the end of that day ● and you choose to apply this method. As you were a non-resident and disposed of a CGT asset after mid 201Y you are no longer entitled to the full 50% CGT discount, and must apportion your discount percentage. The discount that may apply to your capital gain depends on the market value of the Property B at mid 201Y. If the market value on mid 201Y exceeds its cost base on that day, and is equal to or greater than the amount of the discount capital gain, then the 50% discount applies. If the market value is less than the discount capital gain, then the percentage is calculated as follows: Excess = ( Shortfall x Number of apportionable days that you were an eligible resident Number of apportional days 2 x Amount of the *discount capital gain Therefore to determine any discount you can apply to your capital gains by using the market value method, you are required to obtain a market value of the Property B at mid 201Y.