Edited version of private advice

Authorisation Number: 1052114806098

Date of advice: 11 May 2023

Ruling

Subject: CGT - main residence exemption - excluded foreign resident

Question 1

Are you able to claim the main residence exemption for the sale of your property under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are you able to claim a partial main residence exemption for your 50% interest for the sale of your property under section 118-185 of the ITAA 1997?

Answer

No.

Question 3

Are you able to claim the main residence exemption for the 50% interest acquired on the date of death of your spouse for the sale of your property under section 118-195 of the ITAA 1997?

Answer

No.

Question 4

Are you able to claim a partial main residence exemption for the 50% interest acquired on the date of death of your spouse for the sale of your property under section 118-200 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You and your spouse purchased the Property over XX years ago.

You and your spouse had a joint interest in the Property.

You and your spouse have child who is an Australian citizen.

You are a citizen of a foreign country who held permanent residency in Australia from 19XX to 20XX.

You have lodged as a foreign resident for tax purposes from 20XX to 20XX. You intend on lodging as a non-resident for tax purposes for your 20XX tax return.

Your spouse was a foreign resident for tax purposes for at least six years before they passed away.

On XX XXXX 20XX your spouse passed away and title of the Property was transferred to you on XX XXXX 20XX.

At the time of your spouse's death, one of your parents was unwell and required your care until they passed away in 20XX. Your other parent was also unwell and required your care as well.

On XX XXXX 20XX your child's parent-in-law passed away.

You entered into a contract to sell the Property on XX XXXX 20XXwith a settlement date of XX XXXX 20XX

The sale of the Property was delayed due to COVID-19 restrictions.

The deceased's 50% ownership interest in the Property passed to you on their date of death by right of survivorship. Your 50% interest in the Property was acquired when the Property was purchased.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-185

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 section 118-200

Income Tax (Transitional Provisions) Act 1997 subsection 118-110(1)

Reasons for decision

Question 1

Are you able to claim the main residence exemption for the sale of your property under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

No.

Detailed reasoning

A foreign resident is liable to capital gains tax (CGT) when they dispose of taxable Australian property. Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the rules regarding the main residence exemption.

Before 9 May 2017, foreign residents had the same access to the main residence exemption as Australian residents. Amendments contained in subsections 118-110(3), 118-110(4) and 118-110(5) were added as part of the Reducing Pressure on Housing Affordability Measures by the Federal Government in 2019. The amendments prevent individuals who are not Australian residents for tax purposes access to the main residence exemption after 30 June 2020.

The exception is where the person has been a foreign resident for 6 continuous years or less and a 'life events' test (terminal illness, death or a family law matter) is applicable. If you satisfy both criteria, you can claim the main residence exemption as a foreign resident unless you are an excluded foreign resident.

An 'excluded foreign resident' is defined in subsection 118-110(4): you are an excluded foreign resident at a particular time if you are a foreign resident at that time and the continuous period ending at that time for which you have been a foreign resident is more than 6 years. In your case you had been a foreign resident for more than 6 years before the sale of the property, and therefore you are an excluded foreign resident.

The Commissioner has not been granted any additional discretionary powers to allow an excluded foreign resident to use the life events test to acquire the main residence exemption in any circumstance. Therefore, the life events test does not apply and you cannot claim the full main residence exemption.

Question 2

Are you able to claim a partial main residence exemption for your 50% interest under section 118-185 of the ITAA 1997?

Summary

No.

Detailed reasoning

Section 118-185 of the ITAA 1997 allows a partial exemption for an ownership interest if the property was your main residence for only part of your ownership period using the formula set out in subsection 118-185(2). However, under subsection 118-185(3) the partial main residence exemption does not apply as you are an excluded foreign resident.

Question 3

Are you able to claim the main residence exemption for the 50% interest acquired on the date of death of your spouse under section 118-195 of the ITAA 1997?

Answer

No.

Detailed reasoning

If you are a joint tenant and another joint tenant dies, their interest in the dwelling is taken to pass in equal shares to you and any other surviving joint tenants on that date. For the purpose of the main residence exemption, you are treated as if that interest in the dwelling has passed to you as beneficiary of the deceased estate.

Subsection 118-195(1)(c) of the ITAA 1997 disallows a capital gain or loss to be disregarded if the deceased was an excluded foreign resident just before they died. As you inherited an Australian residential property from a deceased person who had been a foreign resident for more than six years at the time of their death, and therefore an excluded foreign resident, any main residence exemption that the deceased person may have accrued for that dwelling is not available to you.

Question 4

Are you able to claim a partial main residence exemption for the 50% interest acquired on the date of death of your spouse under section 118-200 of the ITAA 1997?

Answer

No. The partial exemption from your 50% interest acquired from the deceased will not affect the capital gain or loss.

Detailed reasoning

The partial exemption contained in section 118-200 of the ITAA 1997 is calculated using the formula in subsection 118-200(2), which will determine the capital gain or loss relative to your non-main residence days and total amount of days from when the deceased owned the property to when you sold the property. However, subsection 118-200(2)(aa) acts as a way of preventing an excluded foreign resident, where just before they died their property was not their main residence, from having a partial exemption apply even if the property was previously their main residence.

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