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Edited version of your private ruling

Authorisation Number: 1012343548512

Ruling

Subject: Capital gains tax - main residence

Question and answer:

Can you disregard any capital gain or loss on disposal of your apartment?

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

Several years ago (but after 19 September 1985), you and your spouse contracted to purchase a residence in a foreign country. At that time your spouse was your friend.

At the time, you were a resident of the foreign country.

Final settlement for the residence purchase occurred several years ago.

The residence purchase was registered in joint names with you having a 50% or less ownership interest.

You moved into the apartment at the time it was purchased.

You and your spouse were married in the foreign country several years ago. You had been engaged for about a period before your marriage. On their trips back to the foreign country from Australia they stayed in the residence, although you did not consider them to be your spouse before you married.

Following application for Australian residency, you were granted an Australian residency visa.

You moved out of the residence.

You relocated to Australia on a permanent basis. You became a resident of Australia for tax purposes on the date you arrived. You also elected to make the residence in the foreign country your main residence from that date and you have not treated any other dwelling as your main residence.

You and your spouse contracted to sell the residence.

Settlement was to take place on a specified date.

A capital gain will be made over and above the purchase price plus renovations.

The residence has never been rented out.

Relevant legislation provision:

Income Tax Assessment Act 1997 Section 102-5

Income Tax Assessment Act 1997 Section 102-10

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Subdivision 118-B

Income Tax Assessment Act 1997 Subdivision 118-120

Income Tax Assessment Act 1997 Subdivision 118-170

Reasons for decision

Capital gains tax - general

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 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, as the residence that you owned in the foreign country was purchased after September 1985, it is a CGT asset.

Disposal of CGT assets and CGT event A1

Section 104-10 of the ITAA 1997 is concerned with 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 residence that you owned in the foreign country is a CGT asset and a CGT event A1 occurred when you stopped being its owner, i.e. when it is sold.

Main residence exemption 

There are a number of provisions within the ITAA 1997 that may exempt, in part or in whole, a liability for CGT in certain circumstances. The one which is relevant to your circumstances is the 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 and the dwelling was the taxpayers main residence throughout the ownership period (subject to some conditions). A taxpayer may only elect one residence at a time to be their main residence.

In your case, you elected your foreign country residence to be your main residence.

Becoming a resident

When you become an Australian resident (other than a temporary resident), you are taken to have acquired certain assets at the time you became a resident for their market value at that time.

This does not apply to assets you acquired before 20 September 1985 (pre-CGT assets).

You relocated to Australia on a permanent basis on a date. You became a resident of Australia for tax purposes on that date. You also elected to make your residence your main residence from that date. Therefore, you are deemed to have acquired your residence on the date of your arrival in Australia and the cost base (for calculating capital gain or loss upon disposal) will be the market value of the residence on that date.

Having a different home from your spouse

If you and your spouse have different homes for a period, you and your spouse must either:

If you nominate different homes for the period and you own 50% or less of the home you have nominated, you qualify for an exemption for your share.

In your case, as you have nominated a different home from your spouse of which you own 50% or less (i.e. the residence in the foreign country) you are entitled to disregard any capital gain or loss made on your share of the disposal of the property.

Application to your circumstances

The residence that you part owned in the foreign country is a CGT asset and a CGT event occurred when you disposed of it. It has been your main residence since you arrived in Australia. Further, throughout the ownership period, you have not treated any other dwelling as your main residence. Therefore, you will be entitled to claim the main residence exemption from CGT in relation to your share of the residence as you owned 50% or less of the property in conjunction with your spouse and you will not be assessable on any capital gain made as a result of selling it.

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