Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012747107711

Ruling

Subject: Capital gains tax and main residence exemption

Questions and answers

1. Are you entitled to a full exemption from capital gains tax on the sale of your property B?

No.

2. Are you entitled to a partial exemption from capital gains tax on the sale of your property B?

No.

3. Are you entitled to the 50% general exemption discount on the property?

Yes

This ruling applies for the following periods:

Year ending 30 June 2014

The scheme commenced on:

1 July 2013

Relevant facts and circumstances

You and your family resided in your home A.

You purchased land and commenced building a house.

The contract to purchase the land was exchanged in 2011 with settlement in 2012.

Construction commenced in 2012 with the Certificate of Occupancy issued in 2013.

Property A was sold one month before you moved into property B.

A member of your family fell ill and it was determined to send the family overseas.

The property was put on the market and sold within three months of the original property being sold.

You chose property A to be your principle residence for the period that you owned it.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 6-5.

Income Tax Assessment Act 1997 Subsection 6-10.

Income Tax Assessment Act 1997 Subsection 118-150.

Income Tax Assessment Act 1997 Subsection 115-25(1).

Income Tax Assessment Act 1997 Section 115-40

Reasons for decision

Section 118-150 of the Income Tax Assessment Act 1997 (ITAA 1997) allows you to choose to apply the main residence exemption to vacant land under certain circumstances.

Specifically, subsection 118-150(3) of the ITAA 1997 provides that you can make the choice only if the dwelling that you construct on the land becomes your main residence and the dwelling continues to be your main residence for at least three months.

Subsection 118-150(4) of the ITAA 1997 states that there is a time limit that applies in being able to apply the exemption. The time limit is the shorter of:

Subsection 118-150(6) of the ITAA 1997 provides that once you make the choice to apply the main residence exemption to the land, no other dwelling can be treated as your main residence. However, section 118-140 of the ITAA 1997 allows a maximum of six months in which you may apply the main residence exemption to two dwellings when you are changing main residences.

You claimed the main residence on their property A until it was sold. You then moved into your property B which you sold within three months of selling property A.

As you did not use the dwelling as your main residence for at least three months you do not meet the requirements of paragraph 118-150(3)(c) of the ITAA1997 and consequently will not be able to disregard the capital gain or loss on disposal of the selling property B.

Discount

Division 115 of the ITAA 1997 provides a discount method in relation to the calculation of a capital gain. Under this Division, a discount capital gain remaining after the application of any capital losses and net capital losses from previous income years is reduced by the discount percentage when working out your net capital gain.

You can use the discount method in Division 115 of the ITAA 1997 to calculate your capital gain if:

Under subsection 115-25(1) and section 115-40 of the ITAA 1997, a capital gain will be a discount capital gain, and therefore able to be reduced by the discount percentage, if it results from a CGT event happening to a CGT asset that was acquired at least 12 months before the CGT event.

As you held the property for more than 12 months you are entitled to the 50% discount.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).