Edited version of your written advice

Authorisation Number: 1012832946868

Date of advice: 1 July 2015

Ruling

Subject: Capital gains tax - main residence exemption - absence choice - marriage breakdown

Question 1:

Will the Commissioner allow further time under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to make a choice under Section 118-145 ITAA 1997 to treat the property as your main residence for a six year period in your circumstances.

Answer:

Yes.

Question 2:

Will the Commissioner allow further time under paragraph 103-25(1)(b) of the ITAA 1997 to enable you to rely on a signed statement provided to you by the transferor spouse in which they have made a choice under Section 118-145 of the ITAA 1997 to treat the property as their main residence for a six year period in the circumstances.

Answer:

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20YY

Relevant facts

You and your spouse jointly purchased a residential dwelling after 20 September 1985

You and your spouse immediately occupied the dwelling and resided in the dwelling for a number of years when you and your spouse moved overseas.

You and your spouse leased the dwelling while you were overseas.

You and your spouse returned to Australia and moved back into the dwelling after more than six years.

Whilst residing overseas you and your spouse did not acquire another dwelling.

You and your spouse have separated.

You and your spouse entered into a binding financial agreement and pursuant to the agreement title to the family home was transferred to you.

You sold the dwelling in the 20XX income year.

You were unaware that the sale of the residential home was a capital gains tax (CGT) event and that you are required to include an amount in the relevant income year.

You did not include a net capital gain in your 20XX income tax return.

Your tax agent has reviewed their files and has informed you of the operation of section 118-145 ITAA (absence choice) and you wish to utilise this provision.

Your spouse has provided a signed statement in which they confirm that they will make an absence choice in relation to the period that they were not residing in the dwelling.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 103-25

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-120.

Income Tax Assessment Act 1997 Section 118-135.

Income Tax Assessment Act 1997 Section 118-145.

Income Tax Assessment Act 1997 Section 118-178

Income Tax Assessment Act 1997 Section 126-5.

Reasons for decision

CGT is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event.

The most common event is CGT event A1. CGT event A1 happens when you dispose of an asset to someone else. You are deemed to have disposed of an asset if a change in ownership occurs from you to another entity.

In your case, you acquired a property jointly with your spouse and then your spouse's share in the property was transferred to you. You have sold the property.

Marriage breakdown rollover  

If an asset, or an interest in an asset, is transferred by a person to their spouse as a result of the breakdown of their legal or de facto marriage, rollover applies provided certain conditions are met.  

The effect of a marriage breakdown rollover is that the spouse who receives the asset pays any CGT when they subsequently dispose of it.  

The spouse is taken to have acquired the CGT asset, or interest in a CGT asset, for the cost base, or reduced cost base, of the transferor spouse on the date the CGT asset is transferred.  

Main residence

A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if:

• you are an individual

• the dwelling was your main residence throughout your ownership period

• the property was not used to produce assessable income, and

• any land on which the dwelling is situated is not more than two hectares.

Continuing main residence status after dwelling ceases to be your main residence

In some cases, you can choose to have a dwelling treated as your main residence even though you no longer live in it. You can only make this choice for a dwelling that you have first occupied as your main residence.

Where a dwelling is used to produce income, you can choose to treat the dwelling as your main residence for up to six years after you cease living in it. If you move back to the dwelling and treat it as you main residence, the six year rule will begin again once you move out.

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

Rollover provisions and main residence

Under the main residence provisions, subsection 118-178(2) states:

(a) your ownership interest had commenced when your former partner's ownership interest commenced (the acquisition time); and

(b) from the acquisition time until the time your former partner's ownership interest ended:

(i) you had used the dwelling in the same way that your former partner used it; and

(ii) the dwelling had been your main residence for the same number of days as it was your former partner's main residence.

You and your spouse lived in the property from the date of purchase. You both then lived overseas for more than 6 years while you rented the property. In accordance with a binding financial agreement the property was then transferred to you and you continued to reside in the dwelling until the dwelling was sold.

In your circumstances, you have met the criteria for the rollover provisions to apply and the Commissioner will allow further time for you to make an absence choice.

Note: You will need to amend your 20XX income tax return to include any net capital gain taking into account your non main residence days.