ATO Interpretative Decision
ATO ID 2002/742 (Withdrawn)
Income Tax
Capital gains tax: main residence exemption: demolition and reconstruction.FOI status: may be released
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This ATO ID is withdrawn because the ATO has reconsidered the position stated in the ATO ID. A new ATO ID is in the course of preparation.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 14 March 2003
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer entitled to the main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) for a property if the taxpayer's main residence is demolished and a new dwelling which becomes the taxpayer's main residence is subsequently constructed on the land within 4 years?
Decision
Yes. However, only a partial exemption will be available.
If the taxpayer makes a choice under section 118-150 of the ITAA 1997, the main residence exemption commences from the time the demolished dwelling was last occupied.
If the taxpayer does not make the choice under section 118-150 of the ITAA 1997 the main residence exemption will be available only from the time the new dwelling first becomes the taxpayer's main residence.
Facts
The taxpayer purchased a dwelling in 1998 and resided in that dwelling until 2001 when the dwelling was demolished. The taxpayer intends building a new dwelling on the land, which will become their main residence.
Reasons for Decision
The main residence exemption provisions are contained in Subdivision 118-B of the ITAA 1997. Generally, if a taxpayer builds a dwelling on land they already own, the land does not qualify for exemption under the main residence exemption provisions until the dwelling actually becomes the taxpayer's main residence.
However, section 118-150 of the ITAA 1997 allows a taxpayer to choose for the main residence exemption to apply for up to 4 years before the dwelling becomes their main residence, if they build a dwelling on land, or repair, renovate, or finish building a dwelling on the land. This applies if the taxpayer moves into the dwelling as soon as practicable after the building work is finished and continues to reside there for a minimum of 3 months (subsection 118-150(3) of the ITAA 1997).
If this choice is made, the taxpayer is able to extend the main residence exemption to cover a period prior to the time the dwelling actually became their main residence (subsection 118-150(2) of the ITAA 1997).
Where there is a dwelling on the land when the taxpayer acquires their ownership interest, and the taxpayer or someone else occupied it after that time, the 4 year period starts from the time when the dwelling ceased to be occupied.
Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
Subdivision 118-B
section 118-150
subsection 118-150(2)
subsection 118-150(3)
Keywords
CGT assets
CGT asset construction & creation
CGT original assets
CGT main residence exemption
ISSN: 1445-2782
| Date: | Version: | |
| 4 June 2002 | Original statement | |
| You are here → | 14 March 2003 | Archived |