Edited version of private advice

Authorisation Number: 1051704803800

Date of advice: 24 June 2020

Ruling

Subject: CGT - Main residence

Question

Are you living permanently separately and apart from your spouse under section 118-170 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

Question

Can you choose the dwelling you own in Australia as my main residence?

Answer

Yes

Question

Can you claim the CGT main residence exemption on the transfer of the dwelling to your Australian resident spouse if the transfer occurs before 30 June 2020?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2020

The scheme commenced on:

1 July 2004

Relevant facts and circumstances

You signed a contract to buy a residential block of land in Australia in mid-20XX and arranged to build a home on this land.

You travelled to Australia from mid-20XX to late-20XX and again for a few days in late-20XX to arrange the connection of utilities and to arrange to move all your personal belongings for you and your family to this newly built house.

In early 20XY you and your family moved to Australia to occupy the home; this was the first practical opportunity to occupy the property. Prior to this move you and your family lived in a family home in Country A.

Since occupation your family have lived in this property continuously. You live and work overseas and, after occupying the property, you departed to continue your overseas employment. The property has never been rented.

For the past XX years you have travelled to Australia to spend time with your family on several occasions per year. You tend to spend no less than 10 days with your family on each visit.

It is now your intention to transfer the home to your spouse before 30 June 2020.

You are always a non-resident of Australia and have been since 20YY. You spouse is a resident and has been so since occupation of the property.

You plan to continue working overseas until eventual retirement at which point you wish to retire and move to Australia with your family.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 116-30

Income Tax Assessment Act 1997 Section 118-100

Income Tax Assessment Act 1997 Section 118-170

Reasons for decision

Section 118-170 of the Income Tax Assessment Act 1997 (ITAA 1997) states -

(1) If, during a period, a * dwelling is your main residence and another * dwelling is the main residence of your * spouse (except a spouse living permanently separately and apart from you), you and your spouse must either:

(a) choose one of the dwellings as the main residence of both of you for the period; or

(b) nominate the different dwellings as your main residences for the period.

The word dwelling takes on the meaning of section 118-115 of the ITAA 1997, which states -

(1) A dwellingincludes:

(a) a unit of accommodation that:

(i) is a building or is contained in a building; and

(ii) consists wholly or mainly of residential accommodation; and

(b) a unit of accommodation that is a caravan, houseboat or other mobile home; and

(c) any land immediately under the unit of accommodation.

(2) However, except as providedin section 118-120, a dwellingdoes not include any land adjacent to a building.

The term "living permanently separately and apart from you" is not defined so takes its ordinary meaning. In your case you have maintained your family links by returning to visit your family on several occasions every year for no less than 10 days at a time.

The Commissioner does not regard your arrangement as living permanently separately and apart as you return to your family home regularly to maintain family links.

The main residence exemption is outlined in section 118-100 of the ITAA 1997, which states -

You can ignore a capital gain or capital loss you make from a CGT eventthat happens to a dwellingthat is your main residence.

Since you have occupied the house since shortly after completion and have not nominated another residence as your main residence, you are free to assert that this house is your main residence.

As the house has never been rented, and you and your family have occupied the house continuously since early in 20XY, there is no impediment to prevent you claiming the main residence exemption for this property.

Should you dispose of the house by transferring it to your spouse as contemplated, this would be a disposal and cause CGT event A1 to occur. If there are no proceeds received from the disposal, section 116-30 of the ITAA 1997 would mean that you are taken to receive the market value of the CGT asset that is subject to the event.

However, as stated in section 118-100 of the ITAA 1997 you can ignore a capital gain from a CGT event that is your main residence. This exemption is only available to foreign residents where the CGT event occurs up to or before 30 June 2020.

In your case, if the transfer to your spouse occurs before 30 June 2020 you may claim the main residence exemption and ignore the capital gains you make from the disposal to your spouse.