ATO Interpretative Decision

ATO ID 2003/810 (Withdrawn)

Income Tax

Capital gains tax: choice and main residence exemption - demolition and construction of a new dwelling
FOI status: may be released

This ATOID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Will the taxpayer be entitled to a full main residence exemption under Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of a property where the taxpayer never lived in the original dwelling, but continuously occupied as their main residence, a new dwelling subsequently built on the land?

Decision

No. The taxpayer will not be entitled to a full main residence exemption under Subdivision 118-B of the ITAA 1997 as under section 118-150 of the ITAA 1997, the taxpayer can only choose to apply the main residence exemption from when the original dwelling ceased to be occupied by someone else and not when the taxpayer acquired an ownership interest in the land.

Facts

The taxpayer acquired a property with an existing building in late 1988. The previous owner continued to live in this building until March 1989. The taxpayer did not move into the existing building.

The taxpayer demolished the original building soon after the previous owner vacated it and constructed a new building on the land, which was completed in late 1989. The new building became the taxpayer's main residence as soon as practicable after construction was completed. From January 1989, when the taxpayer sold his existing dwelling, until the new dwelling was completed, the taxpayer occupied rented premises and had no other main residence.

The taxpayer lived in the new dwelling for more than three months and intends to sell the property in the near future.

Reasons for Decision

Generally, where a taxpayer builds a dwelling on land they already own, the land does not begin to qualify for the main residence exemption, under Subdivision 118-B of the ITAA 1997, until the dwelling actually becomes the taxpayer's main residence.

Subsection 118-150(4) of the ITAA 1997 can operate to allow the taxpayer to choose to treat the land as if it was their main residence, where the taxpayer acquired the land, but before moving in, it is necessary to construct, repair, renovate or finish building a dwelling on the land. The taxpayer can only choose this longer period of exemption if the dwelling becomes their main residence as soon as practicable after the work is finished and it remains their main residence for at least three months.

In a case where there was already a dwelling on the land when the taxpayer acquired their ownership interest, but after that time, either the taxpayer or someone else occupied the dwelling, the time during which the main residence election can be chosen is reduced, so that the period when the exemption starts begins when the dwelling ceased to be occupied, and not from when the taxpayer acquired their ownership interest.

In this case, the taxpayer did not have another main residence during the period from when the original dwelling ceased to be occupied (March 1989) to the date the taxpayer moved into the new dwelling as their main residence (late 1989). Therefore, the taxpayer can choose to apply the main residence exemption under section 118-150 of the ITAA 1997 for this period. The choice can be made as the new dwelling became the taxpayer's main residence as soon as practicable after the work was completed, and it continued to be the taxpayer's main residence for more than three months.

Therefore, for the taxpayer, the main residence exemption period does not start when they acquired their ownership interest in the property, but from when the original dwelling ceased to be occupied and would end when the property ceased to be their main residence.

Date of decision: 24 July 2003

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   subdivision 118-B
   section 118-150
   section 118-150(4)

Related ATO Interpretative Decisions
ATO ID 2003/232
ATO ID 2003/466

Keywords
Capital gains tax
CGT assets
CGT main residence exemption

Business Line: Losses and CGT Centre of Expertise

Date of publication: 5 September 2003

ISSN: 1445-2782

history

	Date:	Version:
	24 July 2003	Original statement
You are here	30 March 2012	Archived

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