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Subject: Capital Gains Tax - main residence - non income producing - disposal

Question:

Can you choose to treat your family home as your main residence for capital gains purposes for the whole of the period that you were overseas?

Answer:

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts:

You purchased your family home after 20 September 1985 moving into it immediately after purchase.

You started employment overseas after a period of time and resided there until you returned to Australia after a number of years.

During the period that you were working overseas, your main residence was occupied by your child and your grandchildren.

You did not receive any money for rent from your child and you continued to pay all the expenses during this period.

You returned to the residence during your annual leave.

Your child and your grandchildren have recently vacated the residence.

You will sell the residence and make a capital gain.

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 118-145

Reasons for decision:

Main residence exemption

Generally, you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income. 

In some circumstances you may choose to have a particular dwelling treated as your main residence even though you ceased to use it as such. You can continue to treat the dwelling as your main residence where you meet the following criteria:  

(a)   At any time either:

·        You use the part of the dwelling that was your main residence for the purpose of producing assessable income (for example renting it out); up to a maximum of six (6) years at any one time.

·        If you do not use the dwelling that was your main residence for the purpose of producing assessable income but leave it vacant, then you can extend the exemption indefinitely. 

(b)   You do not treat any other dwelling as your main residence for the time you are applying the extension. 

(c)   You make the necessary election(s) for the extensions of the main residence period to that property. The election must be made either by the time you lodge your income tax return for the income year in which the relevant CGT event occurred or within such further time that the Commissioner allows.  

As the residence was established as your main residence after purchase and the residence was never income producing, the dwelling can continue to be treated as your main residence during the whole of the period you were absent.

Therefore, you have met the conditions and are eligible for a full main residence exemption. As such the capital gain from the disposal of the property will be disregarded