Private ruling: Capital gains tax - main residence exemption - absence choice
Date of advice: 13 March 2018
Published: June 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow further time for you to make an absence choice under section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 103-25 and | Income Tax Assessment Act 1997 Section 118-145.

Reasons for decision: Summary: Subsection 118-145(1) of the Income Tax Assessment Act 1997 (ITAA 1997) allows a taxpayer to make a choice that a dwelling continues to be treated as their main residence even though it has ceased to be so. The choice can be made for a total of six years where the dwelling was used for the purpose of gaining or producing assessable income. If an individual does elect to treat a dwelling as their main residence after they have moved out of it, no other dwelling can be treated as their main residence during the same period. Subsection 103-25(1) of the ITAA 1997 provides that a choice must be made: (a) by the day you lodge your income tax return for the income year in which the relevant CGT event happened or (b) within a further time allowed by the Commissioner. The way you (and any other entity making the choice) prepare your income tax return is sufficient evidence of the making of the choice (subsection 103-25(2) of the ITAA 1997). You included a capital gain in your income tax returns for the year ended 30 June 20XX. This would indicate that you did not make the absence choice at the time you prepared your income tax returns. The general rule is that a choice available under the capital gains tax (CGT) provisions, once made, cannot be changed. However, the Commissioner considers that if a taxpayer does not actually consider certain CGT concessions, then it could not be said that the taxpayer actually makes a choice. In determining if the discretion to allow further time would be exercised, the Commissioner has considered the following factors: (a) evidence of an acceptable explanation for the period of extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension) (b) prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension) (c) unsettling of people, other than the Commissioner, or of established practices; (d) fairness to people in like positions and the wider public interest (e) whether any mischief is involved; and (f) consequences of the decision. Your tax return was prepared by a tax agent who should know the CGT concessions available considering a tax agent’s level of skill and knowledge in preparing tax returns. However, they were not aware of a main residence choice. Furthermore, you were not aware there was a choice available to you under the CGT main residence provisions. In considering your situation and the factors above, the Commissioner has allowed an extension of time to make a choice under subsection 118-145(1) of the ITAA 1997 to treat the property as your main residence from the time you moved out until the time you sold it. Your assessment for the year ended 30 June 20XX will need to be amended to remove the capital gain.

Relevant facts: You purchased a dwelling in 20XX after separating from your partner. (Dwelling 1) | Dwelling 1 was your main residence. | Your former partner suffered a serious medical condition in 20XX and you moved into their dwelling to provide care and support. (Dwelling 2) | You resided at dwelling 2 with your children. | You entered into a 12 month lease for dwelling 1. | You intended to return to dwelling 1 once your former partner had recovered. | Your former partner passed away in 20XX. | The executors of your former partner offered you the option of purchasing dwelling 2 and you decided to do so. | You sold dwelling 1 in 20XX. | You acquired dwelling 2 in 20XX. | You declared a capital gain in your tax return for the year ended 30 June 20XX. | You used the services of a tax agent to prepare your 20XX tax return. | You and your tax agent were not aware of the absence choice available for your main residence when preparing your 20XX tax returns. | You wish to exercise the absence choice available to elect to continue to treat dwelling 1 as your main residence from when you stopped living in it. | As your 20XX tax return has been lodged and a notice of assessment issued you now wish to amend this return to exclude the capital gain declared.