Private ruling: Main Residence Exemption
Date of advice: 22 November 2016
Published: March 2017
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

Ruling: Q1: Are you entitled to make an absence choice in relation to your dwelling? | A1: Yes.

Relevant facts and circumstances: You purchased an property (the dwelling) in 200X. The dwelling was your main residence from the time of purchase until you moved out in 20XX. Between 20XX and 20YY you resided in a rental property. From 20YY you rented the dwelling out, and it is currently still being rented. In 20YY you became a non-resident of Australia for tax purposes and became a resident of another country. When you became a non-resident you chose to disregard your capital gain or capital loss on the dwelling. You did not own another main residence in Australia during this period. You have not purchased another dwelling overseas as your main residence during this period. You currently reside in rented accommodation in another country. You have been absent from the property for more than 4 years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 104-160 | Income Tax Assessment Act 1997 Subsection 104-165 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-140 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Subsection 118-145(2) Further issues for you to consider | Anti-avoidance rules | Summary | You may make an absence choice in relation to the dwelling, even though you became a foreign resident during the period of absence.

Reasons for decision: Summary: You make a capital gain or capital loss if a Capital Gains Tax (CGT) event happens to a CGT asset that you own. Land and dwellings are CGT assets. CGT event A1 is the most common CGT event, and occurs when you dispose of a CGT. You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base. When you dispose of a property that was your main residence you can disregard any capital gain or capital loss that you make if: ● the dwelling was your main residence for the whole period you owned it; ● the dwelling was not used to produce assessable income; and ● the land on which the dwelling is located is not more than two hectares. | Detailed Reasoning - Six year absence rule: Once a dwelling has been established as your main residence you may continue to treat that dwelling as your main residence during periods of absence. If the dwelling is left vacant you may continue to treat the dwelling as your main residence for an indefinite period. Where the dwelling is rented, the maximum period that you may continue to treat the dwelling as your main residence is six years. If you choose to treat the dwelling as your main residence, you cannot nominate any other dwelling as your main residence during your period of absence If you make a choice, it is not affected by you becoming a non-resident for tax purposes during the period of absence. | Detailed Reasoning - Capital gains tax (CGT) and ceasing to be an Australian resident: If a taxpayer ceases to be an Australian resident, a CGT event is triggered for each asset the individual owns. The relevant CGT event for an individual or company ceasing to be an Australian resident is CGT event I1. The consequence of CGT event I1 is that an individual ceasing to be an Australian tax resident is subject to CGT on an unrealised capital gain. A choice is therefore available where an individual may choose to disregard a capital gain or loss. If a taxpayer makes this choice, the taxation of the unrealised capital gain or loss is only deferred. It is not permanently disregarded. The gain will be subject to tax when the taxpayer actually disposes of the relevant asset (and therefore have the funds to meet any tax liability). Subsection 104-165(2) of the ITAA 1997 achieves this result by deeming the relevant asset to be taxable Australian property until such time as another CGT event happens in relation to the asset or the taxpayer once again becomes an Australian resident (whichever occurs first). | Detailed Reasoning - Application to your circumstances: In your situation, you have chosen to defer CGT event I1 which occurred in relation to the dwelling when you ceased to be an Australian resident for tax purposes. This means the dwelling has continued to be taxable Australian property. As you have not owned another main residence during your entire ownership period of the dwelling, you may choose to continue to treat the dwelling as your main residence for an absence period of up to six years, even if you become a non-resident of Australia for tax purposes during this time. As the dwelling will continue to be taxable Australian property, if you do not re-establish the dwelling as your main residence, and you still own the dwelling at the end of your six year absence period, you will need to apportion any capital gain or loss made based on the proportion of non-main residence days accrued from this time on.