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Edited version of private ruling
Authorisation Number: 1011730909811
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Ruling
Subject: Capital gains tax and main residence
Question:
Are you required to pay capital gains tax on the sale of your property?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You and your spouse purchased land.
A house was built on the land.
You and your spouse did not move into the house and live in it.
The house was sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 section 118-110
Income Tax Assessment Act 1997 section 118-35
Reasons for decision
Capital gains tax
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer makes a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985.
A taxpayer makes a capital gain if their capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if a taxpayer received more for an asset than they paid for it.
A taxpayer makes a capital loss if their reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset.
Capital gains tax is not a separate tax, it forms part of a taxpayer's assessable income and is taxed at each taxpayer's marginal tax rate.
CGT - main residence
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.
Taxation Determination TD 51 states that whether a dwelling is a taxpayer's sole or principal residence is an issue which depends on the facts in each case. Some factors may include, but are not limited to:
· the length of time the taxpayer has lived in the dwelling
· the place of residence of the taxpayers family
· whether the taxpayer has moved his or her personal belongings into the dwelling
· the address to which the taxpayer has his or her mail delivered
· the taxpayers address on the Electoral Roll
· the connection of services such as telephone, gas and electricity
· the taxpayers intention in occupying the dwelling
A mere intention to occupy a dwelling as your main residence without actually doing so is not sufficient to get the exemption.
Moving into the dwelling
To establish a dwelling as a main residence you must move in as soon as practicable. The term as soon as practicable is used in section 118-135 of the ITAA 1997 to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the property became your main residence on the date you acquired it (that is, you would have to physically move in on that day).
In your case you and your spouse did not move into the property. As soon as the house was complete the house was placed on the market.
The fact that you intended to move into the property and was unable to do so is not enough to exempt you from paying capital gains tax.
Accordingly, you are liable for capital gains tax on the sale of the property.
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