Edited version of private advice

Authorisation Number: 1052320924334

Date of advice: 21 October 2024

Ruling

Subject: Capital gains tax

Question

Does the Commissioner have any discretion to extend the 6 year absence rule under section 118-145 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You purchased a property and lived in the property as your main residence.

You moved out of the property and rented it out through a real estate agent.

The property was available for rent each financial year until you sold it.

You had no other main residence for the period the property was rented.

You lived in shared accommodation and paid rent.

You were taken to hospital around the time you had intended to sell the property.

You remained in hospital for several weeks and lived in separate accommodation close to the hospital until you were discharged.

You were unable to return to your property to sell it.

This delayed the sale of the property by several months.

You elect to treat the property as your main residence for the 6 years it was rented under the absence rule in section 118-145 of the Income x Assessment Act 1997 (ITAA 1997).

The property was rented for a short period over 6 years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-145

Reasons for decision

You make a capital gain or loss because of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss.

You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it.

You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it.

Capital gains tax is not a separate tax, it forms part of your assessable income and is taxed at your marginal tax rate.

A taxpayer can choose to continue to treat a dwelling that was their main residence as their main residence under section 118-145 of the ITAA 1997.

If the dwelling is used to produce income in the taxpayer's absence, the maximum period that the taxpayer can choose to treat it as their main residence while they use it for that purpose is 6 years as per subsection 118-145(2) of the ITAA 1997. If they do not use the dwelling to produce income, then they can treat the dwelling as their main residence under section 118-145 indefinitely as per subsection 118-145(3) of the ITAA 1997.

If a taxpayer chooses to continue treating the dwelling as their main residence in their absence under section 118-145, they cannot treat any other dwelling as their main residence during that period.

You can treat the property as your main residence under the absence rule in section 118-145 of the ITAA 1997 for 6 years while it was rented.

The absence rule will not cover the days over the 6 year period the property was rented.

You will need to pay CGT on the days that fall outside the 6 year period.

The legislation does not provide the Commissioner with any discretion to exempt the CGT for the days outside the 6 year legislated time frame.

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