Private ruling: Capital gains tax - Main residence
Date of advice: 25 February 2016
Published: April 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2015

Ruling: Q1: Can the property you intend to purchase overseas, be treated as your main residence for the whole time you own it? | A1: No. | Q2: Does a CGT event occur in relation to the property when you cease to be an Australian resident? | A2: Yes.

Relevant facts and circumstances: You currently live in country A. You own no home at present. You intend to purchase a property in overseas in the 20XX calendar year. You do not intend to move into this property until 20YY due to the following reasons: • You are assisting currently assisting family members in Australia and you don't wish to move until their circumstances change. • You intend to modify the property so that it is suitable for your spouse's needs before you move in. You intend to rent the property while you are still living in Australia. Once you move into to the house, you intend to cease being an Australian resident.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 118-B, | Income Tax Assessment Act 1997 section 118-135, | Income Tax Assessment Act 1997 section 118-150 and | Income Tax Assessment Act 1997 section 104-160.

Reasons for decision: Summary: The main residence exemption under subdivision 118-B of the ITAA 1997 may allow to you to disregard all or part of any capital gain or capital loss you made from a CGT event that happens to your ownership interest in a dwelling where the dwelling was your main residence. Section 118-135 of the ITAA 1997 extends the main residence exemption to take into account the time needed to move into a dwelling. The section allows you to treat a dwelling as your main residence for the period from when you acquired it until it was first practicable to move into it. The Explanatory Memorandum to the Bill which became the Tax Law Improvement Act (No.1) 1998 indicates that the term 'as soon as practicable' in section 118-135 of the ITAA 1997 is intended to apply in situations where moving into the home is temporarily delayed due to matters outside the persons control. It is not extended to the situation where the individual is unable to move into the dwelling because it is being rented out. Having an intention to occupy a dwelling at a future stage does not satisfy the requirements of moving in when first practicable. In your case, there are multiple reasons as to why you don't wish to move in immediately into the property after the purchase, which are: • You are currently assisting family members in Australia and you don't wish to move until their circumstances change. • You intend to modify the property so that it is suitable for your spouse's needs before you move in. Your intention is to move into the property in 20YY and you will rent the property out until then. Choosing to stay in Australia and assisting family members and moving in to the property after their circumstances change would not be considered an unforeseen circumstance and would not satisfy the requirement to move into the property it as soon as practicable. Therefore you will be unable to treat the overseas property as your main residence for the entire time you own it. A CGT event I1 happens to CGT property, which is not Australian real property, when you cease to be an Australian resident. As you intend to leave Australia permanently, you will be treated as a foreign resident for tax purposes from the date of your departure. When you cease to be an Australian resident, you will be taken to have disposed of the property for its market value at that time. This CGT event is known as I1 - Cessation of residency.