Edited version of private advice

Authorisation Number: 1052191990837

Date of advice: 14 November 2023

Ruling

Subject: CGT - main residence exemption - 6 years absence rule

Question

Can you use the 6 years absence rule under subsection 118-145(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to treat your property (the Property), as your main residence, while it is rented out during your temporary absence from it, for a maximum period of 6 years?

Answer

Yes.

This ruling applies for the following periods:

Income year ending 30 June 20XX.

Income year ending 30 June 20XX.

Income year ending 30 June 20XX.

Income year ending 30 June 20XX.

Income year ending 30 June 20XX.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances

You purchased a property (the Property), owned by you.

The Property:

•         is your main residence since its acquisition;

•         is less than 2 hectare in area;

•         was never used to produce income at any time;

Your spouse also lived with you in the Property. He does not own any other property in Australia.

You left Australia temporarily.

You state:

•         the main purpose for temporarily leaving Australia is due to family circumstances;

•         the maximum period of temporary absence from Australia will be 6 years.

You are planning to rent out the Property for a maximum period of 6 years during your temporary absence from Australia to generate rental income to cover for land tax/expenses.

You will move into the Property after your return to Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997section 104-10

Income Tax Assessment Act 1997section 118-110

Income Tax Assessment Act 1997section 118-125

Income Tax Assessment Act 1997section 118-130

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

Reasons for decision

CGT event A1 under section 104-10 happens if an entity disposes of a CGT asset. A CGT asset includes an interest in real property (subsection 108-5).

Subsection 118-110(1) states

A capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if:

a)    you are an individual; and

b)    the dwelling was your main residence throughout your *ownership period; and

c)    the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person.

Broadly, this exemption may not apply in full if the dwelling was your main residence during part only of your ownership period or (subject to the application of section 118-145) the dwelling was used for the purpose of producing assessable income.

'Ownership period' is defined in section 118-125 as the period on or after 20 September 1985 when you had an ownership interest in the dwelling (or land on which the dwelling is later built).

In accordance with subsections 118-130(2) and (3), you have an ownership interest in a dwelling that you acquire under a contract from the time when you obtain legal ownership of it (unless you have a right to occupy the dwelling at an earlier time) and, where the dwelling is disposed of under a contract, your ownership interest ends when your legal ownership of it ends.

Paragraph 118-170(1)(b) provides for a taxpayer and their spouse to each nominate a different dwelling as their main residence for a period. However, if they make separate nominations, each will only be entitled to a maximum 50% main residence exemption for the period: subsections 118-170(3) and 118-170(4).

Absences

Section 118-145 sets out rules that may extend the exemption. Subsection 118-145(1) provides that you can choose to continue to treat a dwelling as your main residence if it ceases to be your main residence. The period for which the dwelling can continue to be treated as your main residence depends on whether or not it is used for the purpose of producing assessable income.

Subsection 118-145(2) states that, 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 section 118-145 while you use it for that purpose is 6 years. In contrast, and pursuant to subsection 118-145(3), if you do not use the dwelling for an assessable income producing purpose, you can treat it as your main residence under section 118-145 indefinitely.

Application to your circumstances

The Property, which is less than 2 hectares, is your main residence from the time you obtained legal ownership of it. You will be using the Property for the purpose of producing assessable income for a maximum period of 6 years during your temporary absence. Given that you will not treat another dwelling as your main residence for the purposes of Subdivision 118-B during your ownership period of the Property, you will be able to choose to continue to treat The Property as your main residence from the time the Property was acquired: subsection 118-145(2).