Private ruling: Capital gains tax - main residence - dependent child
Date of advice: 16 February 2016
Published: April 2016
Ruling period: Income year ending 30 June 2016 | Income year ending 30 June 2017; and | Income year ending 30 June 2018.
Date scheme commenced: 1 July 2015.

Ruling: Q1: Will you be eligible to fully disregard the capital gain made on the disposal of your ownership interest in the Australian dwelling? | A1: Yes.

Relevant facts and circumstances: Documentation has been provided with this private ruling which forms part of, and should be read in conjunction with this description. You are a non-resident of Australia for taxation purposes and are an Australian Citizen. You are a resident of an overseas country for taxation purposes, and it is where your career is based and you spend most of your time. You have the following children: • Child A, born in 19AA; and • Child B, born in 19BB. Child A, commenced their studies in Australia around mid 20WW. You and your spouse jointly purchased a dwelling in Australia (the Australian dwelling) around late 20WW. Child A, moved into the Australian dwelling immediately after settlement on the purchase of the dwelling and your spouse stayed with Child A for around two weeks to help them move into the dwelling. You have made the choice for the Australian dwelling to be the main residence of you and Child A. You visited Australia a number of times from 20WW to the present, for periods of less than four weeks. You did not visit Australia in 20XX as you had separated from your spouse (your ex-spouse) with the divorce proceedings being completed in 20YY. Child B moved into the dwelling in 20YY when they had begun their studies in Australia. Child A left Australia around July 20YY to travel to overseas to study as an exchange student as part of the program requirements of their studies during a period from 20YY to 20ZZ. Child A returned to Australia in 20ZZ. During their time overseas, Child A would travel to the overseas country where you lived to visit their grandparents during most of their school terms or they would travel to Australia during the term break if they had obtained a part-time job or had a social occasion to attend. Child B would return to the overseas country where you lived to visit their grandparents during school term breaks or would stay in Australia during the breaks if you were visiting. You returned to an overseas dwelling (the overseas dwelling) owned by your parents after your visits to Australia. The overseas dwelling was close to where your parents live so that you could take care of them. For the purposes of this private ruling: • you and your ex-spouse did not have another residence in Australia during the period covered by this private ruling • your ex-spouse will transfer their ownership interest in the Australian dwelling to you during the period covered by this private ruling • the Australian dwelling will not be used to produce assessable income for the period covered by this private ruling • you will dispose of the Australian dwelling during the period covered by this private ruling; and • you and your ex-spouse have made the choice to treat the Australian dwelling as your main residence at any time that such a choice is available to each of you under the main residence provisions.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-175

Reasons for decision: Detailed Reasoning - Main residence exemption: 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 under the capital gains tax (CGT) provisions. Whether a dwelling is an individual's main residence depends on the facts of each case. The factors to be taken into account include the length of time the individual lives in the dwelling, the place of residence of the individual's family, and whether the individual has moved their personal belongings into the dwelling. | Detailed Reasoning - Dependent child having different main residence: 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 is 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. When the dependent child turns 18, the dwelling will cease to be your main residence. | Detailed Reasoning - Continuing main residence status after dwelling ceases to be your main residence: In some cases, you can choose to continue to treat a dwelling as your main residence after it ceases to be your main residence, known as the "absence choice". You cannot make the absence choice for a period before a dwelling first becomes your main residence. If a taxpayer chooses to apply the absence choice, no other dwelling can be treated as the taxpayer's main residence, unless the taxpayer is moving from one main residence to another. If you do not use the dwelling to produce assessable income, such as renting it out, you can choose to treat it as your main residence for an unlimited period. If the dwelling is rented out, you can continue to treat the dwelling as your main residence for up to six years from the date the dwelling is first available for rent. The absence choice needs to be made only for the income year that the capital gains tax (CGT) event happens to the dwelling, such as the income year in which the dwelling is sold. You can choose to continue to treat a dwelling as your main residence after it ceases to be your main residence. Where you do not use the dwelling to produce income, you can treat the dwelling as your main residence for an unlimited period after you stop living in it. Application to your situation You and your spouse jointly purchased the Australian dwelling in 20WW and you each had a 50% ownership interest in the dwelling. Your child, Child A, moved into the Australian dwelling immediately after settlement on the purchase of the dwelling occurred. Child A was under 18 years of age when they moved into the Australian dwelling and was dependant on you. You resided in a dwelling located overseas, which was your family home. You returned to the overseas dwelling after your visits to Australia. Based on the information you have provided it is viewed that you do not meet the conditions to be an Australian resident for taxation purposes and that the overseas dwelling was your common law main residence. You had visited your children in the Australian dwelling on numerous occasions, however while you had stayed in the Australian dwelling during your visits to Australia, it had not become your common law main residence. You had returned to your overseas dwelling after your visits and it cannot be viewed that you had abandoned that dwelling when you travelled to Australia. Therefore, the Australian dwelling cannot be viewed as your main residence for CGT purposes. However, Child A had resided in the Australian dwelling, moving into the dwelling immediately after settlement on the purchase of the Australian dwelling when they were under 18 years of age. For the period that you and your dependent child under 18 years of age, Child A, were living in separate dwellings you were required to choose a particular dwelling as your main residence of you and your dependent child. You have chosen Child A's residence as your main residence. That is for the period that the Australian dwelling was Child A's residence, commencing from the date of settlement on the purchase of the Australian dwelling until they turned 18 years of age. The Australian dwelling ceased being your main residence when Child A turned 18 years of age. However, you have made the absence choice to continue to treat the Australian dwelling as your main residence from the date Child A turned 18 years of age. Your ex-spouse will transfer their ownership interest in the Australian dwelling to you. As a result, you will have two CGT assets, being the 50% ownership interest you originally acquired when the Australian dwelling was purchased and the 50% ownership interest transferred from your ex-spouse. Your ex-spouse has made the CGT choices to treat the Australian dwelling as their main residence during their ownership period. As you will not use the Australian dwelling to produce assessable income, you can continue to treat make the absence choice to treat the Australian dwelling as your main residence indefinitely. Therefore, when you dispose of your ownership interests in the Australian dwelling, the Australian dwelling will be viewed as having been your main residence for the whole of your ownership periods as a result of making the choices as outlined above. Accordingly, any capital gain made on the disposal of the Australian dwelling can be disregarded.