Edited version of private advice

Authorisation Number: 1052240739780

Date of advice: 16 April 2024

Ruling

Subject: Main residence exemption absence rule

Question

Can Person A choose to continue treating the dwelling as their main residence under section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) in their absence until their late spouse's estate is wound up and the property is sold?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person A and their spouse, Person B, were in the process of moving house to Property A when Person B died suddenly on the day of the move.

Person A completed the move to Property A as the previous home had been sold.

Person B's estate did not go to Person A but to their sibling in Country A and other family situated around the world.

Person B's estate has still not settled, as the sibling has requested to go through Person B's assets as part of the estate settlement.

Person A has been in failing health, with a couple of stays in hospital.

The decision has been made for Person A to move to an aged care unit with onsite carers, doctors and other health support services.

The lease was purchased to enable Person A to access these facilities as they have no family in Australia to assist with their ongoing care.

Person A purchased the unit under a sub lease contract.

Property A has been unable to be sold until the deceased estate is finalised after Person B's sibling has visited to sort through the belongings.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 subsection 118-110(1)

Income Tax Assessment Act 1997 subparagraph 118-130(1)(c)(ii)

Income Tax Assessment Act 1997 section 118-145

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

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

Reasons for decision

Generally, a CGT event that occurs to a taxpayer's main residence is disregarded under subsection 118-110(1) of the ITAA 1997 if they are an individual, the dwelling was their main residence throughout the ownership period and the interest did not pass to them as a beneficiary in, and they did not acquire it as a trustee of, the estate of a deceased person.

Subparagraph 118-130(1)(c)(ii) of the ITAA 1997 specifies that you have an ownership interest in a flat or home unit if you have a licence or right to occupy it.

Where a taxpayer changes main residence, section 118-140 of the ITAA 1997 allows for both the existing and replacement residences to be treated as the taxpayer's main residence for a period of 6 months. The Commissioner has no discretion under the tax law to extend this 6 month period.

A taxpayer can choose to continue to treat a dwelling that was their main residence as their main residence under section 118-145 of the ITAA 1997. If the dwelling is used to produce income in the taxpayer's absence, the maximum period that the taxpayer can choose to treat it as their main residence is six years as per subsection 118-145(2) of the ITAA 1997. If they do not use the dwelling to produce income then they can treat the dwelling as their main residence under section 118-145 indefinitely as per subsection 118-145(3) of the ITAA 1997.

If a taxpayer chooses to continue treating the dwelling as their main residence in their absence under section 118-145, they cannot treat any other dwelling as their main residence during that period.

In this case, if Person A chose to continue to treat Property A as their main residence, then they could not treat the property acquired under the sublease agreement as their main residence for the same period. Therefore, when the sub-lease ends on the aged care unit, there would be a period that it cannot be treated as Person A's main residence (from moving into the aged care unit until Property A is sold) and the CGT calculation would need to be apportioned accordingly.