Edited version of private advice

Authorisation Number: 1052171946326

Date of advice: 22 September 2023

Ruling

Subject: CGT - main residence - absence choice

Question

Is any capital gain or capital loss you make due to the sale of the property disregarded?

Answer

No.

This private ruling applies for the following period

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

The scheme commenced on:

1 July 20xx

Relevant facts

You acquired a dwelling (the dwelling) off the plan some years ago.

The settlement for purchase of the dwelling occurred about three years later.

You were posted overseas in your employment while construction was underway.

You returned to Australia after construction was completed and were posted to another State. You currently reside in rented accommodation.

The dwelling has been used to earn assessable income shortly after construction was completed and continues to do so.

You intended to reside in the dwelling as your main residence however you have not been able to do so.

You will sell the dwelling during the period covered by this private binding ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-145

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

Detailed reasoning

Capital gains tax (CGT)

Your net capital gain is included in your assessable income by section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Your net capital gain is calculated by subtracting any capital losses that you may have accrued from your capital gains made in that income year.

You make a capital gain or capital loss as a result of a CGT event (section 102-20 of the ITAA 1997). The most common event is CGT event A1. CGT event A1 happens when a person disposes 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 (section 104-10 of the ITAA 1997).

CGT Main Residence Exemption

In certain circumstances, there may be an exemption that can apply, which means that the gain or loss created by a CGT event is disregarded. Exemptions from CGT are set out in Division 118 of the ITAA 1997. In particular, Subdivision 118-B of the ITAA 1997 contains the CGT main residence exemption. The exemption disregards a capital gain or capital loss a taxpayer makes from a CGT event that happens to a dwelling, or their ownership interest in a dwelling, which is their 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 (section 118-110 of the ITAA 1997)
• the property was not used to produce assessable income, and
• any land on which the dwelling is situated is not more than two hectares (section 118-120 of the ITAA 1997).

CGT Main Residence Exemption Absence Rule

There are several extensions and limitations to the main residence exemption. These can affect your entitlement to the main residence exemption, depending upon your individual circumstances.

For example, there is an extension to the basic rule which allows you to continue the main residence exemption after the dwelling ceases to be your main residence. This is found in section 118-145 of the ITAA 1997 and is commonly known as the absence rule. Section 118-145 of the ITAA 1997 provides that if you leave your dwelling, such that it is no longer your main residence, you may choose to continue to treat it as your main residence, even if you have rented it out, provided certain criteria are met.

Conclusion

In your case, you acquired a dwelling in 20XX with settlement occurring in 20XX. The dwelling was then used to produce assessable income. You intended to move into the dwelling however you have not due to your employment posting you firstly overseas and subsequently to a separate geographical location to the dwelling.

While we acknowledge and appreciate your particular circumstances, the Commissioner has no discretion to provide a main residence exemption as the dwelling was never your main residence. The absence choice is also unavailable as the dwelling was not your main residence.

CGT discount

As you are an individual and have held the CGT asset for more than twelve months, you will be able to apply a 50% discount to the capital gain made on disposal.