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Edited version of private ruling
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Ruling
Subject: Capital gains tax and the main residence exemption
Question:
Can you disregard a capital gain or capital loss made when you sell your property?
Answer: Yes.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
In 2010 you purchased a block of land and entered into a contract with a local builder to build a house on the land.
You and your family moved into the house and lived in it as your main residence after the building works were completed.
Prior to moving into the house you lived in a rental property.
You have now decided to sell the property and move to a different location.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Subsection 104-10(3)
Income Tax Assessment Act 1997 Subsection 108-5(1)
Income Tax Assessment Act 1997 Section 118-110
Reasons for decision
Capital gains tax
Subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines a capital gains tax (CGT) asset as any kind of property or a legal or equitable right that is not property.
Section 102-20 of the ITAA 1997 states that you make a capital gain or capital loss if and only if a CGT event happens. CGT events are the different types of transactions or happenings which may result in a capital gain or a capital loss.
The disposal of a CGT asset is the most common CGT event and is referred to as CGT event A1 (section 104-10 of the ITAA 1997). A taxpayer disposes of a CGT asset if a change of ownership occurs from the taxpayer to another entity.
Subsection 104-10(3) of the ITAA 1997 describes when the event happens. The time of the event is either when the taxpayer enters into a contract for the 'disposal', or if there is no contract - when the change of ownership occurs.
CGT and the main residence exemption
Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income.
The Guide to capital gains tax 2009-10 states that the following factors may be relevant in working out whether a dwelling is your main residence:
· the length of time you live there - there is no minimum time a person has to live in a home before it is considered to be their main residence
· whether your family lives there
· whether you have moved your personal belongings into the home
· the address to which your mail is delivered
· your address on the electoral roll
· the connection of services (for example, phone, gas or electricity)
· your intention in occupying the dwelling.
A mere intention to construct or occupy a dwelling as your main residence - without actually doing so - is not sufficient to get the exemption.
Application to your circumstances
In your case you purchased land and built a house. You and your family moved into the house and lived in it as your main residence after the building works were completed.
Therefore you are entitled to the main residence exemption when you sell the property. This means that when you sell your property you can disregard a capital gain or capital loss made.
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