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Subject: Capital gains tax - main residence - absence choice - disposal

Question and Answer

Question: Is the capital gain made on the disposal of your share in Dwelling A disregarded?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstance

You and your former spouse purchased a dwelling, Dwelling A, after 20 September 1985 and it was your main residence.

A number of years later, your former spouse inherited an equal share in their deceased parent's dwelling, Dwelling B, with their siblings.

You and your family moved into Dwelling B and Dwelling A was rented out for a number of years.

You made the absence choice in relation to Dwelling A.

You jointly purchased another dwelling, Dwelling C, with a friend while you still owned Dwelling A, but have never lived in, or rented out Dwelling C.

Dwelling A was disposed of and you made a capital gain on the disposal of your share in the dwelling.

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 Subsection 118-145(1)

Income Tax Assessment Act 1997 Subsection 118-145(2)

Income Tax Assessment Act 1997 Subsection 118-145(4)

Reasons for decision

A capital gain or capital loss will occur when a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event is CGT event A1 which occurs when a CGT asset is disposed of.

Generally, you disregard a capital gain made on the disposal of a dwelling that is your main residence if:

The dwelling was your home for the whole period you owned it;

The dwelling was not used to produce assessable income; and

Any land on which the dwelling is situated is not more than 2 hectares.

These provisions are extended to cover those taxpayers who leave their main residence, but choose to continue to treat it as their main residence even if it is rented out, provided certain conditions are met.

If a dwelling ceases to be a taxpayer's main residence, and they use the dwelling to produce assessable income, they can choose to treat the dwelling as their main residence for up to six years after they ceased living in it. This is known as an absence choice.

This choice can be made each time a taxpayer moves out of their main residence and commences renting out the dwelling.

If you make this choice, you cannot treat any other dwelling as your main residence for that period.

In your case, you and your former spouse purchased Dwelling A and it was your main residence. You moved out of Dwelling A and it was rented out for a number of years. You made the absence choice in relation to Dwelling A.

As Dwelling A was rented out, the absence choice period commenced when Dwelling A was first rented out, and could continue for up to six years while the dwelling was rented out.

Dwelling A was disposed of and as the period of time you lived in the dwelling, and the period covered by the absence choice encompasses your entire ownership period of Dwelling A, you disregard any capital gain made on the disposal of your share in the dwelling.