Private ruling: Capital gains tax - main residence
Published: June 2014
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Question and Answer | Are you entitled to use the 6 year absence rule to disregard any capital gain or loss on disposal of your dwelling? | Yes.

Relevant facts and circumstances: Prior to moving to Australia, you and your spouse lived in a foreign country. You and your spouse bought a dwelling in the foreign country after 20 September 1985. Both you and your spouse treat it as your main residence. The total land on which your main residence stands is less than two hectares. You moved out of the dwelling when you moved to Australia. Since moving to Australia, you have rented the dwelling out to tenants. You own no other dwelling. You are now considering selling the dwelling and buying a dwelling in Australia.

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 118-145

Reasons for decision: Detailed Reasoning - Capital gains tax - general: A taxpayer makes a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. In your case, the dwelling that you own in the foreign country was purchased after September 1985, it is a CGT asset. | Detailed Reasoning - Disposal of CGT assets and CGT event A1: CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. In your case, the dwelling that you own in the foreign country is a CGT asset and a CGT event A1 will happen to it when you stop being its owner, that is, when it is sold. | Detailed Reasoning - Main residence exemption: The main residence exemption under subdivision 118-B of the ITAA 1997 may allow a taxpayer to disregard all or part of any capital gain or capital loss they made from a CGT event that happens to their ownership interest in a dwelling where the dwelling was their main residence. The main residence exemption allows the capital gain or loss from the disposal of a dwelling to be disregarded for CGT purposes if the taxpayer is an individual, the dwelling was the taxpayer's main residence throughout the ownership period, the land on which the dwelling is situated on and adjacent to is less than 2 hectares, and the dwelling was not used to produce assessable income. Under section 118-145 of the ITAA 1997, the absence rule allows a taxpayer to choose to treat a dwelling as their main residence even though they no longer live in it. They can do so for up to 6 years after they vacate the dwelling. This choice needs to be made only for the income year that the CGT event happens to the dwelling for example, the year that a taxpayer enters into a contract to sell it. If a taxpayer makes this choice, they cannot treat any other dwelling as their main residence for that period. In your case, you and your spouse bought a dwelling in the foreign country after 20 September 1985. The land on which it is situated is less than 2 hectares. It is your main residence. You own no other dwelling. You moved out of the dwelling when you moved to Australia. Since moving to Australia, you have rented the dwelling out to tenants. Therefore, you will be entitled to disregard any capital gain or loss when you dispose of the dwelling, provided you do so within the 6 year limit specified under section 118-145 of the ITAA 1997.