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Edited version of your private ruling
Authorisation Number: 1012126199619
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Ruling
Subject: Capital gains tax
Question and answer
Are you entitled to disregard in full the capital gain or capital loss made on the disposal of your dwelling where your period of absence is more than six years?
Yes
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2010
Relevant facts
You purchased a residential property in Australia as your main residence.
The property was situated on less than 2 hectares of land.
You lived in the property until you went overseas.
You elected to treat the dwelling as your main residence after you vacated it to live and work overseas. No other property has been your main residence during your ownership period.
During your time overseas your house was looked after by your children who were living there rent free.
You returned to Australia to live and you moved in with a relative in their house.
Your children continued to live in your house rent free while you lived in the other house.
You sold your house in the current financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-110
Reasons for decision
Main residence exemption
Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that you can fully disregard a capital gain or capital loss made from a capital tax (CGT) event that happens to your main residence. To obtain the full exemption from CGT:
· the dwelling must have been your home for the whole period you owned it
· you must not have used the dwelling to produce assessable income, and
· any land on which the dwelling is situated must be two hectares or less.
Absences
Section 118-145 of the ITAA 1997 allows you to continue to treat a dwelling as your main residence even if you stop living in it. You cannot make this choice for a period before a dwelling first become your main residence.
If you do not use the dwelling to produce income - for example, you leave it vacant or use it as a holiday home - you can treat the dwelling as your main residence for an unlimited period after you stop living in it.
If you make this choice, you cannot treat any other dwelling as your main residence during the same period.
This choice needs to be made only for the income year that the CGT event happens to the dwelling.
In your situation, your property was your main residence from when you purchased it and you elected to treat it as your main residence from when you moved out to work overseas until you sold it. The property was not used to produce income as your children were living in it rent free.
Therefore, you are entitled to a full main residence exemption on the sale of your property.