ATO Interpretative Decision

ATO ID 2001/744 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. The ATO view expressed in this ATO ID is still current. Guidance on the view contained in this ATO ID can be found in Moving in (QC 52187).
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does section 118-135 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to treat the dwelling as the taxpayer's main residence when they were unable to obtain physical possession of the dwelling?

Decision

No, it is considered that the taxpayer did not move into the dwelling 'when it was first practicable to do so' within the meaning of section 118-135 of the ITAA 1997. Therefore, the taxpayer is only entitled to a partial exemption for any capital gain or capital loss made on the disposal of the dwelling.

Facts

The taxpayer acquired a dwelling after 19 September 1985, which was occupied by a 'protected tenant'.

Two years after the taxpayer acquired the dwelling, the taxpayer sought to obtain possession through court proceedings.

After three years, the taxpayer was successful in obtaining possession of the dwelling.

The dwelling became the main residence of the taxpayer.

The dwelling was disposed of in June 2001 and the taxpayer wishes to claim the main residence exemption for the entire period of ownership including the period when the dwelling was occupied by the protected tenant.

Reasons for Decision

Section 118-135 of the ITAA 1997 applies to assessments for the 1998-99 income year and later income years (section 102-1 of the Income Tax (Transitional Provisions) Act 1997). As the dwelling was disposed of in June 2001, section 118-135 of the ITAA 1997 may apply to the present case, even though the dwelling was acquired prior to the commencement of the 1998-99 income year.

Section 118-135 of the ITAA 1997 extends the main residence exemption to take account of the time needed to move into a dwelling. It includes the period from when the taxpayer acquired the main residence to when it was first practicable to move into the dwelling after it was acquired. However, the Explanatory Memorandum to the Tax Law Improvement Bill (No. 1) 1998 (the Explanatory Memorandum) explains that section 118-135 is not extended to the situation where the individual is unable to move into the dwelling because it is being rented out.

In the present case, the taxpayer purchased the dwelling with a 'protected tenant.' The fact that the tenant could not be removed until five years later is not sufficient for them to take advantage of the extension of time granted under section 118-135 of the ITAA 1997. Based on the Explanatory Memorandum, it is considered that the taxpayer did not occupy the dwelling 'when it was first practicable to do so' within section 118-135 of the ITAA 1997. The fact that they did not attempt to remove the tenant for two years supports this view.

The taxpayer will need to apportion any capital gain made on the disposal of the dwelling in accordance with subsection 118-185(2) of the ITAA 1997: No exemption is available prior to the taxpayer occupying the dwelling as their main residence.

Amendment History

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   Section 118-135
   Subsection 118-185(2)

Other References:
Explanatory Memorandum to the Tax Law Improvement Bill (No.1) 1998

Keywords
CGT main residence exemption

Business Line:  Small Business/Individual Taxpayers

Date of publication:  30 November 2001

ISSN: 1445-2782