Edited version of private advice

Authorisation Number: 1052231550935

Date of advice: 14 March 2024

Ruling

Subject: Capital gains tax

Question 1

Are you able to use the absence rule to treat the Property as your main residence for an extended period of time (over 10 years)?

Answer

No.

Question 2

Are you able to use the absence rule to treat the Property as your main residence using the absence rule (6 years)?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You and your spouse purchased a Property.

You owned this property 50-50.

You and your spouse moved into the property and treated it as your main residence.

You and your spouse went to Country Z in the year after the purchase of the Property and rented out the Property.

You and your spouse continued to treated the Property as your main residence while in Country Z.

You and your spouse did not treat any other dwelling as your main residence for the period you treated the Property as your main residence.

You and your spouse purchased a house in Country Z in the year after you moved to Country Z.

You and your spouse owned this property 50-50.

You and your spouse did not treat this property as your main residence.

You and your spouse came back to Australia and resumed your residency for taxation purposes a few years after you moved overseas.

You and your spouse rented accommodation in Australia.

You and your spouse purchased a house in Australia several years after your return.

You and your spouse own the house 50-50.

You and your spouse commenced treating the house as your main residence from the time of purchase.

You and your spouse sold the Property a few years after the purchase of the house.

Relevant legislative provisions

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 section 118-185

Reasons for decision

Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that capital gains tax (CGT) event A1 happens if you dispose of a CGT asset.

Section 118-110 of the 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 if you meet the following conditions:

(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

Section 118-145 of the ITAA 1997 provides that if you move out of a property which was being used as your main residence, you may choose to continue to treat it as your main residence after you move out of the dwelling. This is sometimes referred to as the absence choice.

If you use the dwelling for the purpose of producing assessable income, the maximum period that you can treat it as your main residence is 6 years at a time.

You will need to move back into the property at the end of the 6 years and re-establish it as your main residence to be able to commence another 6 year period.

If the property remains vacant you can treat it as your main residence for an indefinite period.

You cannot treat any other dwelling as your main residence for the same period you are using the absence rule.

Where a full main residence exemption is not available, you may be entitled to a partial main residence exemption.

Section 118-185 of the ITAA 1997 contains the formula for calculating a partial main residence exemption for a dwelling that was your main residence for only part of your ownership period.

You calculate your capital gain or capital loss using the formula:

Capital gain or capital loss amount x non-main residence days

Days in your ownership period

In your case you and your spouse purchased the Property and moved into it as your main residence.

You and your spouse moved to Country Z in the following year.

You and your spouse rented the Property out while in Country Z.

You and your spouse elected to treat the Property as your main residence for the period you were in Country Z.

You and your spouse returned to Australia and commenced renting a property in Australia.

You and your spouse continued to treat the Property as your main residence using the absence rule.

You and your spouse purchased the house in Australia.

You are only able to treat the Property as your main residence for up to 6 years as the Property was rented out.

You commenced treating the Property as your main residence when you moved overseas.

The relevant period of time is more than the absence rule allows.

You will have a CGT liability for the Property.

You will need to calculate your CGT liability for the relevant period of time.