Private ruling: Capital gains tax – Main residence exemption – Extension of time to make a choice
Date of advice: 12 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2014.
Date scheme commenced: 1 July 2013.

Ruling: Q1: Will the Commissioner allow further time as provided in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for you to choose to apply or to not apply the main residence exemption to a capital gain? | A1: Yes, an extension will be granted.

Relevant facts and circumstances: In 20XX you purchased property A with your spouse and moved in as soon as practicable. A couple of years after the purchase of property A you and your spouse separated and you purchased their half of the property. You continued to live in the property as your main residence. Approximately 12 months later you and your new partner purchased land, property B. Less than five years after you purchased property B construction of a house was completed and you moved in. You separated from your partner and moved back into property A as your main residence. Approximately 6 years after you moved into property B, it was sold and settled. More than 12 months after the sale of property B, property A was sold and settled. Your previous tax agent claimed the main residence exemption on the capital gain made from the sale of Property B in your tax return. Your previous tax agent did not consult with you about claiming the main residence exemption on the capital gain made from the sale of property B in your tax return. You will amend your tax return to include the capital gain made on the sale of property B.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection103-25(1) (b) | Income Tax Assessment Act 1997 section118-110 | Income Tax Assessment Act 1997 section 118-145

Reasons for decision: Summary: The Commissioner has granted you an extension of time until a specific date for you to make the choice to apply or not to apply the main residence exemption on the property. | Detailed Reasoning - Detailed reasoning: You may choose to disregard all or part of a capital gain under the main residence exemption if you satisfy certain conditions. The general rule is that a choice available under the CGT provisions once made cannot be changed. Such a choice must be made by the time the income tax return is lodged or within such further time as the Commissioner allows as stated in subsection 103-25(1) of the ITAA 1997. Under subsection 103-25(2) of the ITAA 1997, the way you prepare your income tax return is sufficient evidence of the making of the choice. If a taxpayer has not considered the availability of a concession and has included a capital gain in the return for a particular income year, they have not made a choice under the CGT provisions and can later make the choice if an extension of time to make the choice is granted. In determining whether or not an extension of time should be granted, the Commissioner will consider the following factors: (1) there should be evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension (2) account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension (3) account must be had of any unsettling of people, other than the Commissioner, or of established practices (4) there must be a consideration of fairness to people in like positions and the wider public interest (5) whether there is any mischief involved and (6) a consideration of the consequences to the taxpayer in granting an extension. In this case, you were seen to have made a choice under subsection 118-145(1) of the ITAA 1997 as the tax return was submitted and complete with no indication of capital gains tax relating to the sale of Property B. Due to an oversight by your previous tax agent you were not asked to make a choice under the main residence exemption provisions and the capital gain from the sale of Property B was not included in your income tax return. You have now changed tax agents and have been advised to consider the application of the main residence exemption for Property B. On consideration you did not intend to claim the main residence exemption in relation to this property. We consider this to be an acceptable explanation for the period of extension required. There would be no prejudice to the Commissioner or unsettling of people by allowing the extension. There is no mischief involved. The Commissioner considers it fair and equitable in these circumstances to exercise his discretion. Accordingly an extension of time has been granted until a specific date for you to make the choice to apply or not to apply the main residence exemption.