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Edited version of private advice
Authorisation Number: 1012654660654
Ruling
Subject: Capital Gains Tax - main residence
Question
Are you entitled to disregard the capital gain made on the sale of your dwelling?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts and circumstances
You purchased a dwelling in 20XX.
You are a member of the Defence Force.
You were unable to live in the property due to your postings.
You rented the dwelling in a number of periods during your ownership of the dwelling.
You sold the dwelling in 20YY.
You always intended to reside in the property as your sole and principal residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-135
Income Tax Assessment Act 1997 Subdivision 115-A
Reasons for decision
Capital gains on the disposal of CGT assets are assessable income. A capital gain or capital loss is made as a result of a CGT event occurring. The sale of a dwelling is a CGT event A1.
Under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) a capital gain or loss from a dwelling is ignored for CGT purposes if the taxpayer is an individual, the dwelling was the taxpayer's main residence throughout the ownership period and the interest did not pass to the taxpayer as a beneficiary in, or as the trustee of, the estate of a deceased person.
Your entitlement to any main residence exemption is tied to the dwelling becoming your main residence. The term main residence is not defined in the ITAA 1997 and takes its ordinary legal meaning which is worked out objectively and with the benefit of hindsight.
The Guide to Capital Gains Tax 2012-13 details factors that may be relevant to establishing if a dwelling is your main residence. These include:
• 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
The guide also states that a mere intention to construct or occupy a dwelling as your main residence, without actually doing so, is not sufficient to get the exemption.
The term has also been considered by the Administrative Appeals Tribunal in Couch & Anor v. FC of T [2009] AATA 41 where it was found that something that is only an intention by a taxpayer to occupy a property as a main residence is insufficient to give rise to the exemption in section 118-110 of the ITAA 1997. In that case the taxpayer had never resided in the dwelling due to Defence Force postings and having had tenancy leases in place.
In your case, you never lived in the dwelling that you purchased. Although you intended it to be your main residence, that is not sufficient to make the dwelling your main residence. Accordingly, you are not entitled to any main residence exemption.
As you are an individual and have made a capital gain on a CGT asset that you held for over 12 months, you are able to apply a 50% discount to the capital gain in accordance with the provisions of subdivision 115-A of the ITAA 1997.
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