The main reason of period of absence concession
Tax Counsel Pty Ltd. ‘Going Away? The Main Residence Exemption Absence Concession’. Taxation in Australia 49.10 (2015): 594 -596. Print.
The main reason of period of absence concession
The absence concession that is available when applying the CQT main residence exemption can provide substantial benefits and must not be overlooked.
Background
The CGT main residence exemption provides a number of targeted concessions which must not be overlooked. For example, there are concessions which apply in relation to moving into a dwelling, changing main residences, and when a dwelling is built, repaired or reconstructed. One concession which can provide a considerable benefit is what may be called the “absence concession”.1 This article considers the concession.
The concession
The absence concession potentially is available where a dwelling ceases to be a taxpayer’s main residence and permits the taxpayer to choose to continue to treat the dwelling as being his or her main residence.
Where the taxpayer does not use the dwelling (after it ceases to be his or her main residence) for the purposes of producing assessable income, there is no limit on the length of time that the taxpayer may treat the dwelling as continuing to be his or her main residence.
Income-producing use of dwelling
If, however, the taxpayer uses the dwelling for the purpose of producing assessable income after it ceases to be used as his or her main residence, then:
(1) if the income-producing use is only of a part of the dwelling that the taxpayer used for income-producing purposes before the dwelling ceased , to be his or her main residence — the dwelling can be treated as continuing to be the taxpayer’s main residence without any time limit, but the CGT main residence exemption may also be reduced on a pro rata basis.
and (2) if the income-producing use is either of the whole dwelling or of a part of the dwelling that was the taxpayer’s main residence immediately before the taxpayer ceased to use the dwelling as his or her main residence — the maximum period for which the absence concession can apply while there is such income-producing use is six years.
Example 1
Leonie owns a post-CGT dwelling which she has used solely as her main residence for the past three years. She decides to go overseas for an extended period from 15 January 2014 to 16 August 2015 and rents the dwelling out in her absence. During the period that Leonie rented the dwelling out, she incurred interest on a borrowing that was applied to acquire the dwelling.
Leonie can choose (under the absence concession) to treat the dwelling as continuing to be her main residence for the period she is away. She can claim a deduction for the interest she incurs during this period.
Non-resident becoming resident
If a non-resident individual becomes a resident and continues to own a post-CGT dwelling overseas that has been his or her main residence, the absence concession will be available to the individual in respect of that dwelling.
Example
Rick (an Australian resident) moved from Australia to the United Kingdom in 2010 and became a resident of the UK. He acquired a dwelling in London in 2012 which was his main residence. In order to be with his family, Rick moved back to Australia in April 2015. Rick waits for the UK property market to appreciate before selling the dwelling in 2017. It will be open to Rick to make an absence choice in respect of the London dwelling which would mean that any capital gain he makes would potentially be within the CGT main residence exemption. The first element of Rick’s cost base of the dwellirig would be its market value at the time he again became an Australian resident (s 855-45 ITAA97).