Edited version of private ruling

Authorisation Number: 1011639279561

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Ruling

Subject: Capital gains tax (CGT) and main residence - disposal

1. Will any capital gain or capital loss made upon disposal of your main residence overseas be disregarded?

Yes.

2. Will any capital gain or capital loss made upon disposal of your Australian dwelling be disregarded?

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant legislative provisions

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 118-130

Income Tax Assessment Act 1997 - Section 118-140

Income Tax Assessment Act 1997 - Section 118-145

Income Tax Assessment Act 1997 - Section 118-150

Income Tax Assessment Act 1997 - Section 855-10

Income Tax Assessment Act 1997 - Section 855-15

Income Tax Assessment Act 1997 - Section 855-20

Income Tax Assessment Act 1997 - Section 855-45

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You purchased a dwelling off the plan in an overseas country as joint tenants with your spouse after 20 September 1985. The dwelling was constructed and you and your spouse moved into the dwelling as soon as practicable after construction was completed and resided in the dwelling until late 2006. You want to choose the period between purchase of the land and the day you moved into the dwelling as main residence days.

The dwelling is you and your spouse's main residence.

You utilised three loans to purchase the dwelling:

· commercial bank loan

· superannuation fund loans with the interest being calculated upon sale of the dwelling with the principal and interest to be credited back to the superannuation accounts.

You relocated to Australia and were granted temporary residency visa. You arrived in the city of your choice more than two years later. You were granted permanent residency in that year. You and your spouse became Australian citizens the following year.

The dwelling overseas was utilised for income producing purposes from the time you vacated the dwelling.

You and your spouse rented a dwelling in Australia and resided in the dwelling for more than two years.

You and your spouse purchased a dwelling in the city you reside in as joint tenants and the title registered in your names.

You and your spouse are making the absence choice and will continue to treat the overseas dwelling as your main residence.

For the purpose of this ruling you will dispose of your main residence overseas.

For the purpose of this ruling you will dispose of your Australian dwelling after you have sold your foreign residence.

Relevant legislative provisions

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 118-130

Income Tax Assessment Act 1997 - Section 118-140

Income Tax Assessment Act 1997 - Section 118-145

Income Tax Assessment Act 1997 - Section 118-150

Income Tax Assessment Act 1997 - Section 855-10

Income Tax Assessment Act 1997 - Section 855-15

Income Tax Assessment Act 1997 - Section 855-20

Income Tax Assessment Act 1997 - Section 855-45

Reasons for decision

Question 1

Main residence exemption

You make a capital gain or capital loss if a CGT event happens to a CGT asset under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). Any assessable capital gain realised is included in your tax return, along with your other income, which is taxed at your marginal tax rate.

You dispose of an asset when a change of ownership interest occurs from you to another entity. The time of the event is when you enter into the contract of sale, or if there is no contract when the change of ownership occurs. Section 104-10 of the ITAA 1997 provides that the disposal of a CGT asset, such as property, will result in a CGT event A1.

Generally, you disregard a capital gain or capital loss that you make on the sale of a dwelling that was your main residence for your entire ownership period.

If the taxpayer owned a dwelling and it ceases to be the taxpayer's main residence, the taxpayer can choose to continue to treat the dwelling as their main residence during a period of absence. If the dwelling is used for income producing purposes, the period that you can continue to treat the property as your main residence while it is used for that purpose is six years. If the dwelling is not used for income producing purposes, the period is indefinite. (If you make this choice you cannot treat any other dwelling as your main residence for that period).

Where you have built a dwelling on land you have an ownership interest in, you can consider that the dwelling was your main residence from the time you acquired the ownership interest only if:

· a dwelling on the land that you construct becomes your main residence as soon as practicable after the work is finished; and

· it continues to be your main residence for at least three months.

In your situation, you purchased land and constructed a dwelling after 20 September 1985, which became your main residence as soon as practicable after construction was completed. You have chosen to continue to treat the dwelling overseas as your main residence after it ceased to be your main residence. As the overseas dwelling has been used to produce assessable income since you vacated the dwelling, the period that it has been used for this purpose will be less than six years when the dwelling is sold. Therefore, any capital gain or capital loss you make on disposal of the dwelling will be disregarded as the dwelling has been your main residence for all of your ownership period.

Cost base and Date of acquisition of dwelling

Generally, a taxpayer that becomes an Australian resident is taken to have acquired a CGT asset that they owned just before becoming an Australian resident for its market value at the time of becoming an Australian resident except for an asset:

· that is taxable Australian property, or

· that was acquired before 20 September 1985.

Therefore, only the capital gain or loss accrued after becoming an Australian resident are subject to CGT.

In your situation, your temporary resident Visa was granted and permanent residency granted more than four years later. Your acquisition date will is the day you were granted permanent residency as you only became a citizen 12 months after being granted permanent residency.

Question 2

Generally, you disregard a capital gain or capital loss that you make on the sale of a dwelling that was your main residence for your entire ownership period.

As you have chosen to treat your dwelling overseas as your main residence, your Australian dwelling can not be considered your main residence for the same period. Therefore, it has not been your main residence for all of your ownership period and any capital gain can not be disregarded. However, whilst you are not entitled to a full main residence exemption, you are entitled to a partial exemption.

Changing main residences

If you acquire a new home before you dispose of your old home, both dwellings are treated as your main residence for up to six months if:

· the old dwelling was your main residence for a continuous period of at least three months in the 12 months before you disposed of it

· you did not use the old dwelling to produce assessable income in any part of that 12 months when it was not your main residence, and

· the new dwelling becomes your main residence.

In your situation, as you purchased the dwelling in Australia before disposing of the dwelling overseas you are entitled to consider both residences as you main residence for a period not exceeding six months. This six month period becomes a factor in your partial exemption calculation.

Partial exemption

Under certain circumstances, if you are not entitled to a full main residence exemption, you may be entitled to a partial exemption if:

· you are an individual

· the property was your main residence during only part of the period you owned it

· you used the property to produce assessable income, or

· the land on which the property is situated is more than two hectares.

You calculate the part of the capital gain that is taxable as follows:

Total capital number of days in your ownership

gain made from period when the property was not

the CGT event x your main residence___________

period total number of days in your ownership

The total number of days in your ownership period is the days between the settlement of the contract to acquire your Australian dwelling and the settlement of the contract for the sale of the dwelling. The number of days in your ownership period when the property was not your main residence is the number of days between the settlement of the contract to acquire your Australian dwelling and the six months prior to the settlement of the contract for the sale of the overseas dwelling.

Discount method

In certain circumstances, you may be eligible to reduce the amount of tax payable on a capital gain. The capital gains tax discount allows individuals to pay tax on only half of any capital gain they make on assets owned for at least 12 months.

To meet the eligibility criteria for the discount you must:

· be an individual

· have held the asset for longer than 12 months

· have disposed of the asset after 11:45am ACT legal time on 21 September 1999, and

· did not choose to use the indexation method.

In your situation, you acquired your Australian dwelling more than 12 months ago and meet the criteria which allow you to discount your capital gain by 50%.