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Edited version of private ruling

Authorisation Number: 1011600768173

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Ruling

Subject: Capital gains tax (CGT) - main residence exemption - construction of a dwelling - absence choice - different main residence from spouse

Will you be able to disregard the capital gain made on the disposal of your dwelling?

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You acquired a block of land after 20 September 1985 with the total land area of the block being less than two hectares.

You signed a contract for the construction of a dwelling (Dwelling A) on the block of land.

You accepted an offer of an overseas position from your employer before the construction of Dwelling A was completed.

Dwelling A was rented out for a number of years after construction had been completed until you returned to Australia, at which point you moved into the dwelling.

You resided in Dwelling A for a number of years until you were married and moved into your spouse's dwelling (Dwelling B).

Dwelling A was again used as a rental property.

You have made the absence choice to continue to treat Dwelling A as your main residence after it ceased being your main residence.

Your spouse has nominated Dwelling B as their main residence and you have nominated the Dwelling A as your main residence for the period beginning when you moved into your spouse's dwelling.

You intend disposing of Dwelling A.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-120(2)

Income Tax Assessment Act 1997 Section 118-145

Income Tax Assessment Act 1997 Section 118-150

Income Tax Assessment Act 1997 Section 118-170

Income Tax Assessment Act 1997 Section 118-185

Reasons for decision

Construction of a dwelling on land you own

If you are an individual, you can generally ignore any capital gain or capital loss made from the disposal of your main residence when:

Generally, if you build a dwelling on land you already own, the land does not qualify for the main residence exemption until the dwelling becomes your main residence. However, you can choose to treat land as your main residence for up to four years before the dwelling becomes your main residence if you:

The main residence exemption is extended to take account of the time needed to move into a dwelling. The concession takes account of situations where, for example, there is a delay in moving in because of illness or other reasonable cause, and is intended to apply in situations where moving into the home is temporarily delayed due to matters outside the persons control. The meaning of the expression "the time it was first practicable" should not be interpreted as meaning the time it was first convenient for the taxpayer to move into the dwelling.

In your case, you purchased the block of land after 20 September 1985 and constructed a dwelling on the block of land, Dwelling A.

Before the construction of Dwelling A was completed, your employer offered you an overseas position. You could have refused the offer, but had accepted the offer to advance your career. The dwelling was rented out for a number of years while you were overseas.

It is viewed that the reasons for the delay in establishing the dwelling as your main residence are not considered to be adequate. While you have advised that the offer was unforseen when you entered into the construction contract, you have also advised that you could have refused the offer, but had accepted the position overseas to further your career. As a result of accepting the offer, you did not move into the dwelling when construction of Dwelling A had been completed.

The fact that you rented out Dwelling A for a number of years before you began residing there further supports the fact that you did not establish the dwelling as your main residence when it was first practicable to do so, but when it was convenient for you to do so on your return to Australia. Therefore, it has been determined that you did moved into the dwelling as soon as practicable.

As you do not meet all of the conditions listed above for the block of land to qualify for an extension of the main residence exemption, you will not be able to apply the main residence exemption for the period from the date of the purchase settlement until the date you moved into the dwelling when you returned to Australia.

Having a different main residence from your spouse

If you and your spouse have different dwellings for a period, you and your spouse must either:

If your ownership interest in the dwelling you have nominated is more than 50%, then your share is exempt for half of the period that you and your spouse have different dwellings.

This rule applies to each home the spouses own and also applies if you choose to treat a dwelling as your main residence when you no longer live in it under the absence choice.

In your case, you moved into your spouse's dwelling after you were married. You have advised that you and your spouse have nominated separate dwellings as your main residence, with you nominating Dwelling A as your main residence for the period starting from when you moved into your spouse's dwelling.

Your ownership interest in Dwelling A is greater than 50%, therefore, the dwelling will only be viewed as your main residence for half the number of days during the period from when you moved into your spouse's dwelling until you dispose of the dwelling.

As you did not move into the dwelling as soon as practicable, and as you and your spouse have nominated separate main residences, your dwelling is not considered to be your main residence for all of your ownership period and any capital gain made on the disposal of the dwelling will not be disregarded.

Partial main residence exemption

If a CGT event happens to a dwelling you acquired on or after 20 September 1985 and that dwelling was not your main residence for the whole time you owned it, you may be eligible for a partial main residence exemption.

In your situation, you are eligible to a partial exemption because Dwelling A was your main residence during part of your ownership period. The exemption is calculated on a time basis, with the capital gain made being reduced proportionally.

The following formula is used to calculate the capital gain amount when a partial main residence exemption is applicable:

  Capital gain X __Non-main residence days__

Capital gain will be calculated as the difference between the capital proceeds received on the disposal of Dwelling A, and the dwelling's cost base.

Non-main residence days will be the total number of days that you were the dwelling is not considered to be your main residence. This will cover the following periods:

Days in your ownership period will be the total days from the date of settlement of the contract of purchase of the block of land until the date of settlement of the contract of sale when Dwelling A is sold.

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