Edited version of private advice

Authorisation Number: 1052131220834

Date of advice: 21 June 2023

Ruling

Subject: CGT - main residence exemption

Question

Are you entitled to claim the capital gains tax main residence exemption?

Answer

No.

This ruling applies for the following period:

Year ended XX June 20XX

The scheme commenced on:

X July 20XX

Relevant facts and circumstances

You purchased a property at the end of 20XX. It was your main residence.

You have elderly relatives in a foreign country who need your care.

In 20XX, you went overseas take care of them. You were an Australian resident for tax purpose until then.

At the beginning of 20XX the COVID-19 pandemic broke out. You were stranded in the foreign country.

You had planned to come back to Australia by the end of 20XX but at that time air fare was too high and you could not afford it.

In the foreign country, the lockdown lasted several months. The restriction was very strict, and no one could even leave their house, so you had to stay in the foreign country. Once the lockdown was over, you came back to Australia.

In addition, your financial situation deteriorated significantly due to various factors, and you became unable to repay your bank loan on time. As a result, you had to make the difficult decision to sell your property quickly, while in in the foreign country. As soon as the lockdown in ended, you hurried back to Australia to handle all the matters related to selling the house.

The property was sold in 20XX. The contract date was XX March 20XX and the settlement date was XX September 20XX.

You returned to Australia on XX June 20XX and have been living here since then.

You have purchased a new house as your main residence and lived in until now.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 118-110(3)

Reasons for decision

Summary

You are not an excluded foreign resident because you have been a non-resident for tax purposes for a continuous period of less than 6 years. However, you do not satisfy all the requirements of the life events test. Consequently, you are not entitled to claim the CGT main residence exemption for the disposal of your property.

Detailed reasoning

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. However, subsection 118-110(3) states that section 118-110 does not apply if, at the time the CGT event happens, you are an excluded foreign resident or are a foreign resident who does not satisfy the life event test.

Excluded foreign resident

Subsection 118-110(4) of the ITAA 1997 that you are an excluded foreign resident at a particular time, if you are a foreign resident at that time and the continuous period at that time for which you have been a foreign resident is more than 6 years.

In your case, you went to a foreign country in 20XX to take care of your elderly mother and father-in-law. You returned to Australia on XX June 20XX. As the total period you were in the foreign country was less than 6 years, you are not an excluded person under subsection 118-110(4) of the ITAA 1997.

The life event test

Under subsection 118-110(4) of the ITAA 1997 you satisfy the requirements of the life events test at the time the CGT event happens (that is, you dispose of your property), if both of the following conditions are met:

a.             you were a foreign resident for tax purposes for a continuous period of 6 years or less; and

b.             during that period, one of the following occurred:

                              i.                you, your spouse or your child under 18 had a terminal medical condition

                             ii.                your spouse or your child under 18 died

                            iii.                the CGT event happened because of a formal agreement following the breakdown of your marriage or relationship.

If you satisfy both these criteria and meet the general requirements for the exemption, you can claim the main residence exemption.

In your case, you went to the foreign country in 20XX and returned to Australia on XX June 20XX. You were a foreign resident for tax purposes for a continuous period of less than 6 years. You satisfy the requirement of paragraph 118-110(4)(a) of the ITAA 1997.

However, at the time you disposed of your property, none of the events specified in paragraph 118-110(4)(b) occurred. Therefore, you did not satisfy all the requirements of the life events test in subsection 118-110(4) of the ITAA 1997.

Please note that the declining health of your elderly relatives do not satisfy the requirements of the life events test.

Conclusion

Although you are not an excluded foreign resident you do not satisfy the life events test and, consequently, you are excluded from claiming the main residence exemption on disposal of your property.