Edited version of private advice

Authorisation Number: 1051862795621

Date of advice: 8 July 2021

Ruling

Subject: CGT - main residence

Question

Are you able to disregard the capital gain or loss on the transfer of the property in Australia to an entity?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2021

Year ended 30 June 2022

The scheme commenced on:

1 July 2019

Relevant facts and circumstances

You signed a contract to purchase a residential property in Australia. This sale was settled in early 20XX.

You immediately occupied this house as your principal place of residence.

In MM 20YY you returned to Country A and the property was rented through a local real estate agent on normal commercial terms from late 20YY until early 20ZZ. After this date the property was not rented but was occupied for short holidays when you returned from Country A. When not occupied by yourself post this point the property remained vacant.

This property has always been your principal place of residence and you established no permanent home overseas. Upon returning to Country A you initially lived with relatives. After this you leased an apartment which is used exclusively by yourself and your family.

You ceased Australian residency in the 20AA income year.

It is now your intention to transfer the home to a related entity. To that end you signed a contract of sale before 30 June 2020 for the sale for the sale of this property.

You are selling your residence to Company A Pty Ltd which is owned by the W Trust. The Director of Company A Pty Ltd is a relative.

You are the trustee director of the W Trust and you are also a beneficiary of this trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-145(1)

Income Tax Assessment Act 1997 Section 118-145(2)

Income Tax Assessment Act 1997 Section 118-145(3)

Income Tax Assessment Act 1997 Section 118-100

Income Tax Assessment Act 1997 Section 116-30

Reasons for decision

Section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) states -

(1) If a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.

(2) If you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.

(3) If you do not use the dwelling for that purpose, you can treat it as your main residence underthis section indefinitely.

Since the property was rented for a period of less than 6 years and was then reoccupied by you, there is no impediment to you asserting a main residence exemption for the sale of this house.

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 event that happens to a dwelling that 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 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.

A change in law on 12 December 2019 means if you are a foreign resident for tax purposes at the time you dispose of your residential property in Australia, you will not qualify for exemption from CGT unless you satisfy certain criteria.

This change was contained in the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019.

The change in law applies to foreign residents for tax purposes as follows:

•        for property held prior to 7:30pm (AEST) on 9 May 2017

• you can only claim the CGT main residence exemption for disposals that happen up until 30 June 2020 and only if you meet the other requirements for the exemption
• disposals that happen from 1 July 2020 are no longer entitled to the CGT main residence exemption unless you satisfy the life events test

Where you dispose of the main residence under a contract, the disposal time is the time you entered into the contract. Where you do not dispose of the main residence under a contract, the disposal time is the time of settlement.

In your case, if the transfer to the related entity occurs, you may claim the main residence exemption upon settlement of the property. This is because, even though you are a foreign resident, the contract of sale was entered into before 30 June 2020. Therefore, you qualify to claim the main residence exemption.