(upbeat drumming music)
-: A common sticking point
when it comes to the, main residence exemption,
relates to choosing to treat a dwelling,
that was a taxpayer's main residence,
as continuing to be their main dwelling
during an absence in accordance with Section 118-145.
Nick, is an IT software analyst working in Melbourne
and has received a promotion that requires him
to move to Sydney.
Nick, has lived in his unit, in an inner Melbourne suburb,
for three years, and this is his main residence.
Upon moving to Sydney, Nick rents an apartment
close to his new office,
and rents out his Melbourne unit for five years.
His unit is then occupied rent-free by his sister
for a further four years, before Nick decides to sell it
and purchase a property in Sydney.
During the 9-year period of absence from his main residence
Nick has not claimed any other dwelling
as his main residence.
What we need to consider is whether Nick's absence period
has exceeded six years whilst earning accessible income
on the main residence?
So Nick only received assessable rental income
for a five-year period, as his sister did not pay rent.
Therefore, the unit is still deemed
to be his exempt main residence,
as the absence period, whilst earning assessable income,
does not exceed six years.
Consequently, he may disregard
any capital gain or loss on disposal.
Now let's consider what would happen
if, after the five-year period, Nick, instead, returned
and reoccupied his Melbourne dwelling
as his main residence,
but then left again to relocate to Adelaide for work.
If Nick rents out his unit for the four years
while he's in Adelaide, and then decides to sell,
he can still claim the absence exemption.
This is because the exemption for a six-year period,
whilst earning assessable income,
resets when Nick returns to live in his main residence.
And, of course, the exemption period remains indefinitely
if the residence is not used to earn income.
That is, if Nick's sister was to stay there rent-free.
Fiona, acquired a dwelling in Melbourne
on the 1st of May 2000, which she initially rented out,
but then occupied, as her main residence,
after one year on 1st of May 2001.
On 1st of May 2005 she moves to Perth.
She rents out her Melbourne dwelling,
and buys a new dwelling in Perth.
On 30th of April 2016 she sells her Melbourne dwelling.
Fiona, can elect to treat her Melbourne dwelling
as her main residence throughout her absence,
so long as she does not claim her Perth dwelling
at the same time.
Fiona, will evidence her choice
by the way she completes her tax return
for the year of disposal.
So if she elects for her Melbourne dwelling
to be her main residence until its sale,
then she calculates her net capital gain
by treating the first six years of absence as exempt.
The proportion of the capital gain or loss
that is disregarded is based on the number of days
the Melbourne dwelling was used, or deemed,
as her main residence.
So the exempt days are from 1st of May 2001
to the 30th of April 2011,
noting that the 30th of April 2011
is six years after she moved out on 1st of May 2005,
and started earning assessable income on the property.
So the actual main residence days are 1460.
The deemed main residence days are the first six years
Fiona was absent, which is 2,191 days.
The total ownership period is from 1st of May 2000
to the 30th of April 2016 when Fiona sold the property.
This is 5,843 days.
So the proportion of the capital gain disregarded
is worked out by dividing the total exempt days of 3,651
by the total ownership period.
This is 0.625 or 62.5%.
And therefore 62.5%
of any capital gain or loss will be disregarded.