Private ruling: Capital gains tax
Date of advice: 29 January 2018
Published: June 2018
Ruling period: Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Can you disregard a capital gain made on the disposal of your property? | A1: No.

Relevant facts and circumstances: You and your parent rented a property many years ago. The property was the dwelling where you lived together on an ordinary, regular day to day basis. You both lived in the property together as a family. All your belongings were kept at the property. You were registered to vote in the electorate of the property and your mail was sent to the property. As you had lived in the property for many years you envisioned that you would purchase the property under the first home owner’s grant and continue to reside in the property as your main residence. A few years ago with improving financial circumstances, you approached the landlord to purchase the property. During the negotiation process, a number of work related events occurred around the same time and you also rented an apartment in another area due to convenience of proximity to work. Around this same time you also received an offer of employment overseas. You applied for entry for employment in the overseas country and lodged the relevant form. The contract of acquisition to purchase the property was signed and settled the next month. The property is in your name only. You flew overseas before settlement. You subsequently left the overseas country and returned to start your employment overseas approximately two weeks after settlement. At that time you became a non-resident for Australian tax purposes and have remained so to date. You have worked in the overseas country since that time, however you retained the property. Your parent has continuously lived in the property for many years. You stay in the property when you return to Australia to visit. You have never rented the property out or received any income from your parent for residing in the property. You consider your parent as a family member and a dependent. You provide funds to assist with the cost of living. You have no other main residence in Australia. You jointly own with your spouse another property which is an investment property. You had rented an apartment in the overseas country and have now purchased a property in that country which you use as your residence. You currently reside in the overseas country for employment purposes and are considering selling the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 paragraph 118-110(1)(b) | Income Tax Assessment Act 1997 section 118-145 | Income Tax Assessment Act 1997 section 118-190

Reasons for decision: Summary: Capital gains tax (CGT) is the tax that you pay on certain gains you make. You may make a capital gain as a result of a CGT event, happening to an asset in which you have an ownership interest. The most common CGT event, CGT event A1, occurs when you dispose of your ownership interest in a CGT asset to another entity. You are considered to have disposed of a CGT asset if a change of ownership occurs. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). Main residence exemption Generally, you can disregard a capital gain or loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence. To get the full exemption from CGT: ● The dwelling must be your main residence throughout your ownership period (paragraph 118-110(1)(b) of the ITAA 1997). ● You must not have used the dwelling to produce assessable income (unless the temporary absence rule in section 118-145 of the ITAA 1997 applies) (section 118-190 of the ITAA 1997). A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved into it as soon as practicable after that time. However, if there is a delay in moving in because of an unforeseen circumstance, the exemption may still be available. In your case you had received an offer of employment in an overseas country and completed your immigration form for entry for employment in that country before you signed the contract to purchase the property. It is not considered that you moved into the townhouse as soon as practicable after you acquired the townhouse. Furthermore it could not be said that it was your intention to occupy the dwelling as your main residence after purchase when you had previously accepted employment overseas. Such circumstances were not unforeseen. It is acknowledged that you previously lived in the property with your parent, however, this occurred while the property was rented and when you had no ownership interest in the property. The fact that you stay in the property when you visit Australia does not make the property your main residence. As the property has not been established as your main residence since purchase, the absence rule under section 118-145 of the ITAA 1997 does not apply. Therefore your capital gain made on the disposal of your property is not exempt. Any capital gain made forms part of your assessable income in the relevant year.