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Edited version of your written advice
Authorisation Number: 1051453320298
Date of advice: 7 December 2018
Ruling
Subject: Main residence exemption
Question 1
Are you eligible for the full main residence exemption?
Answer
No
Question 2
Are you eligible for the partial main residence exemption?
Answer
Yes
Question 3
As a foreign resident where the capital gains withholding of 12.5% applies to the proceeds on the sale pf the property, where the property is transferred to your child at market value but for no cash proceeds, can an exemption be granted to not withhold 12.5% of the market value as there is no cash proceeds or does the 12.5% need to be financed for the period between sale and lodgement of the tax return.
Answer
No
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You were an Australian resident early 19XX at which time you moved overseas and became a non-resident.
You have not had a main residence outside of Australia since 19XX.
You are considering gifting this property to your child at market value.
The market value is over $XXX,XXX
The property was purchased in mid 19XX and you consider it to be your main residence from this time.
You lived in the property until 19XX.
You began renting the property in early 19XX.
You did not return to live in the property yourself after 19XX
You ceased renting the property in early 20XX and your child began living in the property.
Your child does not pay rent to live in the property.
Relevant legislative provisions
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 section 118-185
Income Tax Assessment Act 1997 section 118-190
Taxation Administration Act 1953 section 14-200
Reasons for decision
Full Main Residence Exemption
Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence (section 118-110 of the ITAA 1997).
In order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it (section 118-110 and 118-185 of the ITAA 1997), must not have been used to produce assessable income (section 118-190 of the ITAA 1997) and any land on which the dwelling is situated should not be more than two hectares.
For this exemption to apply it must be established that a property is your main residence or home. Whether a dwelling is an individual's principle residence depends on the facts of each case. The factors to be taken into account include the length of time the individual lives in the dwelling, the connection of services, mailing address, and whether the individual has moved his personal belongings into the dwelling.
If you own more than one dwelling during a particular period, only one of them can be your main residence at any one time except in limited circumstances when moving from one main residence to another (section 118-140 of the ITAA 1997).
Partial main residence exemption
Section 118-185 of the ITAA 1997 states that if a dwelling was your main residence for only part of your ownership period, you will only get a partial exemption for a CGT event that occurs in relation to the dwelling. The capital gain or loss is calculated using the following formula:
Total capital gain or loss x |
Non-main residence days |
Total days in your ownership period |
Where:
● non-main residence days is the number of days in your ownership period when the dwelling was not your main residence, and
● the ownership period for capital gains tax purposes is from the date of settlement of the contract to purchase the property until the date of sale of the contract of sale of the property.
Absence choice (six year absence rule exemption)
Subsection 118-145 of the ITAA 1997 allows you to make a choice that a dwelling continues to be treated as your main residence even though it has ceased to be so. The choice can be made for a total of six years where the dwelling was used for the purpose of producing assessable income, or indefinitely where it was not used for this purpose. You are entitled to another maximum period of six years each time the dwelling again becomes and ceases to be your main residence.
The absence concession is only available once the dwelling has qualified as your main residence (as discussed above). If you make this choice, you cannot treat any other dwelling as your main residence while you apply this section.
In your case, you purchased the property in 19XX and lived in it until 19XX when you left Australia and began renting it out. The rental period continued until 20XX when your child moved in.
You did not return to live in the property and cannot apply the absence choice beyond the six year exemption period while it was producing rental income.
You can resume treating the property as your main residence once you ceased renting it and it was occupied by your child.
Foreign resident capital gains withholding
Under Section 14-200 of the Taxation Administration Act 1953 (TAA 1953) Foreign resident capital gains withholding applies to vendors disposing of certain taxable Australian property. A 12.5% non-final withholding is applied to these transactions at settlement.
The assets subject to the withholding tax are:
● •taxable Australian real property with a market value of $750,000 or more
● •an indirect Australian real property interest
● •an option or right to acquire such property or interest.
Where the seller of these Australian assets is deemed a foreign resident, the buyer must pay 12.5% of the purchase price to the ATO as a foreign resident capital gains withholding payment unless a varied amount to applies under section 14-235 of the TAA 1953.
The foreign resident seller can claim a credit for the foreign resident capital gains withholding payment by lodging a tax return for the relevant year.
In this case, you are a foreign resident and will be disposing of a taxable Australian property with a market value of over $750,000 and therefore the 12.5% withholding will apply unless a varied amount is applicable. The TAA 1953 does not allow an exemption to the foreign resident capital gains withholding in your circumstances.
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