1011555312965 | Legal database

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Edited version of private ruling

Authorisation Number: 1011555312965

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Ruling

Subject: Capital gains tax - main residence exemption - dependent children

Question and Answer

Is any capital gain or capital loss that you make on the sale of the property disregarded?

Yes

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are a citizen of an overseas country and have never been an Australian resident for taxation purposes. You have never lodged an Australian income tax return.

Some time after 20 September 1985 you purchased a property in Australia (herein referred to as the property) to house your dependent children who were overseas students attending high school.

You set up residence as soon as the property was purchased and had all of the utilities put into your name.

You and your children resided in the property immediately after settlement occurred and you stayed there for several months until the children were settled at school.

The children were under 18 years of age and dependents at the time the property was purchased.

You spent several months of each year residing in the property with your children and the remainder of the time at your residence in the overseas country.

The children continued to reside in the property for a period of time whilst they studied at high school and university. They continued to be financially dependent on you during this time.

After a period of time the children had completed their studies. They vacated the property and moved back to the overseas country.

The property was left vacant for a period of time and was used as a holiday home when the family occasionally visited Australia.

The property is now being sold.

You wish to treat the property as your main residence for the period in which the children were residing in it and for the period after your children ceased residing in it.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110,

Income Tax Assessment Act 1997 Section 118-145 and

Income Tax Assessment Act 1997 Section 118-175.

Reasons for decision

Generally, any capital gain or capital loss that you make on the sale of a property that was your main residence for your entire ownership period is disregarded.

Section 118-175 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where a dwelling is your main residence and another dwelling is the main residence of a child of yours who is under 18 and is dependent on you for economic support, you must choose one of them as the main residence of both of you. You have chosen the Australian property as your main residence. When the youngest child turned 18 the property ceases to be your main residence.

Section 118-145 of the ITAA 1997 provides that 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. You have chosen to continue to treat the property as your main residence for the period from when your children turned 18 until the property is sold.

These choices are available to both residents and non residents.

In your situation, you chose to treat the property as your main residence for the period that the property was the main residence of your children who were under 18 and financially dependant on you. You then chose to continue to treat it as your main residence from the time that the children turned 18 until it was sold. The property was not used to produce income and therefore is treated as your main residence for an unlimited period. Accordingly, you are entitled to a full main residence exemption and any capital gain or capital loss that you make on the sale of the property is disregarded.

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