Edited version of private advice

Authorisation Number: 1052326165760

Date of advice: 31 October 2024

Ruling

Subject: Main residence exemption

Question

Are you able to claim the main residence exemption under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

The property was sold while you were a foreign resident for less than six years, with no legislated life events applying to your situation. As a result, you cannot disregard any capital gain or loss from the sale because you have not met the requirements for the main residence exemption.

This ruling applies for the following period:

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

You were an Australian tax resident for a continuous period of 6 years prior to the 20YY income year.

In XXXX 20YY, you signed a contract of employment with an Australian organisation on a permanent basis.

On XX XXXX 20YY, you purchased a property located in Australia.

You commenced living at the property and established it as your main residence.

In XXXX 20YY, you took sick leave from your role with the Australian organisation and departed to Country A.

In XXXX 20YY, you returned to Australia and continued working with the Australian organisation.

In XXXX 20YY, you returned to Country A to be with family and friends.

In 20YY, you commenced casual work in a short-term role at a higher education institution in Country A.

You have stated that your intention was to return to Australia in 20YY. The COVID-19 Pandemic resulted in border closures from XXXX 20YY to XXXX 20YY, subsequently preventing you from travelling back to Australia.

In XXXX 20YY, you arranged to fly to Australia to meet the tenant of the property and initiate the sale of the property. A water leak occurred in the apartment above which required rectification works which were not resolved until XXXX 20YY.

On XX XXXX 20YY, a contract of sale of the property was executed.

Settlement of the property occurred on XX XXXX 20YY.

The property was used to produce income for a period less than 6 years.

You were a foreign resident as at the date of sale. You had been a foreign resident for a period less than 6 years as at the date of settlement.

None of the following life events applied to your circumstances during the period of foreign residency:

•         A terminal medical condition of yourself, spouse or children.

•         Death of spouse or children.

•         Divorce or separation.

You have supplied various documents submitting that you have met the life events test for reasons other than described by legislation.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

A foreign resident or temporary resident is liable to capital gains tax (CGT) when they dispose of taxable Australian property.

Section 118-110 of the ITAA 1997 outlines the rules regarding CGT main residence exemptions.

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.

Before 9 May 2017, foreign residents had the same access to the main residence exemption as Australian residents.

Amendments contained in subsections 118-110(3), 118-110(4) and 118-110(5) were added as part of the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019.

The amendments prevent individuals who are not Australian residents for tax purposes access to the main residence exemption.

The exception is where the person has been a foreign resident for 6 continuous years or less and a 'life events' test (terminal illness, death or a family law matter).

Subsection 118-110(3) states

However, this section does not apply if, at the time the CGT event happens, you:

(a) are an excluded foreign resident; or

(b) are a foreign resident who does not satisfy the life events test.

The ITAA 1997 subsection 995.1(1) states that the life events test has the meaning given by subsection 118-110(5) of the ITAA 1997.

Subsection 118-110(5) of the ITAA 1997 states:

You satisfy the life events test, at the time a CGT event happens, if:

(a) the continuous period ending at that time for which you have been a foreign resident is 6 years or less; and

(b) you are covered by any of the following subparagraphs:

(i) you or your spouse has had a terminal medical condition that existed at any time during that period of foreign residency;

(ii) your child has had a terminal medical condition that existed at any time during that period of foreign residency, and that child was under 18 years of age at least one such time;

(iii) your spouse, or your child who was under 18 years of age at death, has died during that period of foreign residency;

(iv) the CGT event happens because of a matter referred to in a paragraph of subsection 126-5(1) involving you and your spouse (or former spouse).

Application to your situation

You were a foreign resident at the date of sale of the property, therefore you will need to satisfy the two requirements set out by subsection 118-110(5) of the ITAA 1997. The first requirement is that you have been a foreign resident for a period less than 6 year which based on the circumstances advised in this ruling you have met.

You have provided substantial information to support arguments that you meet the 'life events' test. The arguments you have supplied cannot be considered as the definition of a 'life event' is restricted specifically to those mentioned under subsection 118-110(5)(b)(i)-(iv). Therefore, as none of the subparagraphs of legislation apply to your circumstances, you are unable to utilise the main residence exemption.