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Edited version of your written advice
Authorisation Number: 1051210628748
Date of advice: 4 April 2017
Ruling
Subject: Capital gain tax
Question
Can you apply the six years absence rule under section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of your dwelling?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2016.
The scheme commences on:
1 July 2015.
Relevant facts
You purchased a dwelling a number of years ago (the dwelling).
You lived in the dwelling for a period of time when you bought it and the dwelling was your main residence.
You moved out of the dwelling and rented it out as an investment property.
You continued to treat the dwelling as your main residence while it was rented out.
The dwelling was sold after a number of years.
The settlement occurred after the sale date.
You will not treat any other dwelling as your main residence for that period.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-135
Income Tax Assessment Act 1997 Section 118-145
Reasons for decision
CGT main residence exemption rules
Subdivision 118-B of the ITAA 1997 contains the CGT main residence exemption rules. Section 118-110 of the ITAA 1997 provides that an individual can disregard a capital gain that arises from disposing of his or her main residence if:
● the dwelling was your home for the whole of your ownership period
● the dwelling was not used to produce assessable income, and
● any land on which the dwelling is situated is not more than two hectares.
Section 118-135 of the ITAA 1997 provides that if a dwelling becomes your main residence at the time it was first possible for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence.
In your situation, you lived in the dwelling from the date you bought it until you moved out.
Therefore, the dwelling is considered to be your main residence.
Absence Choice
Generally, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to continue to treat a dwelling as your main residence for CGT purposes even though you no longer live in it. This is known as an absence choice.
If the dwelling is not used to earn assessable income, and you do not own another main residence during the period of your absence, you can choose to treat the property as your main residence indefinitely. If the dwelling is used to earn assessable income you may make an absence choice for a period of up to six years.
In your situation, when you moved out of the dwelling, it was rented out until the dwelling was sold.
You did not treat any another dwellings as your main residence, and the dwelling was used to produce assessable income a period of less than six years,
Therefore, you were able to make an absence choice, and continue to treat the dwelling as your main residence from the time you moved out until the settlement occurred.
If you make this choice, you cannot treat any other dwelling as your main residence for that period (subsection 118-145(4) of the ITAA 1997).