Edited version of private advice

Authorisation Number: 1052033391294

Date of advice: 23 September 2022

Ruling

Subject: Capital gains tax

Question

Is any capital gain or loss you make due to the sale of the property disregarded?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You purchased a residential property more than X years ago.

You lived at the property (as your main residence) for period of about X years.

You vacated the property and moved overseas for some X years.

The property was subsequently rented about X years.

On XXXX, you intended to return to Australia and resume your main residency at the property, thereby complying with the main residence 6 year rule. However, due to the unforeseen and extenuating circumstances created by Covid-19 and strict border closures, the border opening date was delayed twice.

Therefore, you could not return to Australia and you were unable to return to your main residence. Furthermore, due to financial difficulties arising from overseas unemployment and inability to return to Australia (despite being on the DFAT emergency return to Australia), you signed a tenancy agreement for another X months for fear of suffering more financial losses and uncertainty of border closures.

During this period, you were able to return to Australia and you then lived with family and friends due to your current unemployment status and the inability to find an affordable rental. The current tenants were unwilling to break the current tenancy contract and refused to vacate the property due to their inability to find a suitable rental.

However, part way through the tenancy agreement was terminated and you moved back into the property (as your main residence).

The tenants are paying a nominal weekly amount to cover bills and rates until they can find a suitable rental.

You intend to put the house on the market in the next months. Your anticipated sale date is shortly thereafter.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-145

Reasons for decision

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the rules regarding Capital Gains Tax (CGT) main residence exemptions.

Subsection 118-110(1) states that

A capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if:

(a) you are an individual; and

(b) the dwelling was your main residence throughout your ownership period; and

(c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person

As a general rule, a dwelling is no longer your main residence once you stop living in it. However, under section 118-145 of the ITAA 1997you may choose to have a dwelling treated as your main residence for capital gains tax purposes even though you no longer live in it.

Under subsection 118-145(2) of the ITAA 1997, 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.

The 6-year period in relation to income-producing use need not be continuous. If there are intermittent periods of income-producing use during the one period of absence, those intermittent periods are aggregated in calculating whether the 6 year limitation has been exceeded.

However, if you make this choice, you cannot treat any other dwelling as your main residence while you apply this section.

In your situation

You are seeking an extension to the main residence 6 year rule by about X months (being the period that you were unable to move back into your house due to Covid-19 border restrictions).

However, The Commissioner has no discretion to extend the date you can sell the property and still qualify for a full CGT main residence exemption - nor is the any provisions in the existing law which would allow the Commissioner to vary those dates and disregard any capital gain or loss you make due to the sale of the property.

The Government understands that Covid-19 is creating significant hardship in the Australian community, including making it difficult for residents (living abroad) to sell their Australian property to retain access to the capital gains tax main residence exemption. However, the Government also has an ongoing responsibility to balance both the generosity and the sustainability of concessions in the tax system and ensuring the main residence exemption is well targeted can contribute to this aim.

In summary the Commissioner does not have the authority to not apply the law to your circumstances and the law does not give him any discretion in these matters. The maximum period the dwelling can continue to be your main residence while you used it to produce income is 6 years.

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