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Ruling

Subject: Capital gains tax - main residence - absence

Question and answer

Are you able to apply the absence rule for the period you are not living in your main residence and get the main residence exemption?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You have been living at in your main residence for a while.

You intend to rent out your main residence.

You intend to move into another house.

You elect for the property you move out of to be your main residence.

You will treat no other property as your main residence for the period your main residence is being rented out.

Relevant legislative provisions:

Income tax Assessment Act 1997 Subdivision 118-B.

Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision

Main residence exemption

The main residence exemption under subdivision 118-B of the ITAA 1997 may allow a taxpayer to disregard all or part of any capital gain or capital loss they made from a CGT event that happens to their ownership interest in a dwelling where the dwelling was their main residence.

The main residence exemption allows the capital gain or loss from the disposal of a dwelling to be disregarded for CGT purposes if the taxpayer is an individual, the dwelling was the taxpayers main residence throughout the ownership period and the interest did not pass to the taxpayer as a beneficiary in, or as the trustee of, the estate of a deceased person.

However, subject to the absence rule, a taxpayer will only get a partial exemption for a CGT event that happens in relation to their ownership interest in a property if the dwelling was their main residence for only part of their ownership period.

The absence rule

The absence rule allows a taxpayer to choose to treat a dwelling as their main residence even though they no longer live in it. A taxpayer cannot make this choice for a period before a dwelling first becomes their main residence.

This choice needs to be made only for the income year that the CGT event happens to the dwelling for example, the year that a taxpayer enters into a contract to sell it.

If a taxpayer owns both a dwelling that they can choose to treat as their main residence after they no longer live in it, and a dwelling they actually lived in during that period of time then they make the choice for the income year they enter into the contract to sell the first of those two dwellings.

If a taxpayer makes this choice, they cannot treat any other dwelling as their main residence for that period.

Dwelling used to produce income

If a taxpayer does not use their dwelling to produce income, for example, it is left vacant or used as a holiday home then they can treat the dwelling as their main residence for an unlimited period after they stop living in it.

If a taxpayer does use their dwelling to produce income, for example, they rent it out or it is available for rent, they can choose to treat it as their main residence for up to six years after they stop living in it.

In your case you intend to rent your main residence out.

For the period the property is being rented you will choose no other property as your main residence.

You are therefore able to apply the 6 year absence rule for the period you will renting your main residence out.