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Edited version of your written advice
Authorisation Number: 1051262467568
Date of advice: 02 August 2017
Ruling
Subject: Main residence absences rules
Question
Are you entitled to a full main residence exemption on the sale of your property in Foreign Country X?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You purchased a property in Foreign Country X as your main residence.
You came to Australia on a temporary visa.
Your property was rented out from 20xx.
You became an Australian resident in 20xx.
You were a temporary resident.
Your property was sold in 20xx.
You did not choose another property as your main residence until after the property was sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 6-15(3)
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 118-110
Income Tax Assessment Act 1997 section 118-145
Income Tax Assessment Act 1997 section 768-910
Reasons for decision
Subdivision 768-R of the Income Tax Assessment Act 1997 (ITAA 1997) modifies the general tax rules for people in Australia who are temporary residents.
Subsection 768-910(1) of the ITAA 1997 specifies that the ordinary income you derive directly or indirectly from a source other than an Australian source is non-assessable non-exempt income if you are a temporary resident when you derive it.
However, the ordinary income you derive directly or indirectly from a source other than an Australian source will not be non-assessable non-exempt income to the extent that it is remuneration for employment undertaken, or services provided, while you are a temporary resident (paragraph 768-910(3)(a) of the ITAA 1997).
Subsection 6-15(3) of the ITAA 1997 provides that if an amount is non-assessable non-exempt income, it is not assessable income.
In your case, you were a temporary resident. The rental income derived from your property for that period was not your Australian assessable income.
Section 102-20 of the 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.
Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, (the ownership period) and must not have been used to produce assessable income.
Section 118-145 of the ITAA 1997 extends the general rule and provides that if a dwelling ceases to be your main residence, you may choose to continue to treat it as your main residence in certain circumstances.
Subsection 118-145(2) of the ITAA 1997 provides that:
If you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.
In your case, you purchased the property as your main residence; the property was rented out; you used the property to produce assessable income from 20xx; you sold the property in 20xx which was within the time frame for the absences rule.
Accordingly you are entitled to the full main residence exemption.
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