1051362124548 | Legal database

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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1051362124548

Date of advice: 19 April 2018

Ruling

Subject: Capital Gains Tax - Main Residence.

Question

Can you apply the CGT exemption for the future sale of the property without the pre-requisite that you need to live in the dwelling for three months under section 118-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your partner found and put down a deposit on a house and land package. The intent was this would be your principal place of residence.

Due to circumstances outside of your control, there has been a significant delay in the construction of the dwelling.

The dwelling will be completed shortly.

Due to factors resulting from the delay, you and your partner are looking to sell the property as soon as possible and would prefer to sell the property without having first resided in it.

Your contentions

Your intent was to treat this property as your primary residence and to move into the property as soon as practicable so that you would become entitled to the principal place of residence exemption from Capital Gains Tax (CGT).

As this was your intent you request that you be allowed to apply the exemption without the usual requirement that you live in the property for three months.

Relevant legislative provisions

Income Tax assessment Act 1997 Section 118-50

Reasons for decision

To qualify for the main residence exemption, section 118-150 of the ITAA 1997 requires that the dwelling becomes the main residence of the taxpayer/s as soon as practicable after it is built; and it continues to be the main residence of the taxpayer/s for at least three months.

Therefore, for you to qualify for the main residence exemption there is a requirement to meet the criteria of occupying the dwelling as your main residence for a period of at least three months.

Discretions

You have asked that the Commissioner exercise a discretion to allow you to qualify for the main residence exemption without having to live in the dwelling for at least three months.

The income tax legislation contains some specific discretions. For example, section 118-195 of the ITAA 1997 which sets out the CGT exemption that applies if a beneficiary who inherits a deceased’s main residence disposes of it within two years of the deceased’s death, also contains a discretion that allows the Commissioner to extend that period.

However, there are no specific discretions in relation to section 118-150 of the ITAA 1997.

Therefore, it is necessary to consider the two general discretions being the Commissioner’s general powers of administration and the Commissioner’s remedial power.

PS LA 2009/4 explains when, and how, the Commissioner’s general powers of administration can be exercised. It states that ‘The Commissioner must apply the law not the policy; the powers cannot be used to remedy defects or omissions in the law.’

Whilst it is acknowledged that you believe that the law should allow for exceptions to apply to the requirements in section 118-150 of the ITAA 1997, no such exceptions exist in the law and as stated in PS LA 2009/4, the Commissioner’s general powers of administration cannot be used to remedy such an omission.

Further consideration was made in regard to the Commissioner’s remedial power (CRP). The Commissioner can use this power in limited circumstances where law change would otherwise be required to address instances where the law is not operating as intended by Parliament. The CRP may only be used to resolve general issues that arise for all entities, or issues that impact a particular class of entities. It cannot be used to resolve specific issues affecting a particular individual or entity. Therefore, it is considered that the CRP would not be exercised in your case.

Conclusion

As there are no discretions that can be exercised in relation to section 118-150 of the ITAA 1997, you are not able to apply the main residence exemption without meeting all the requirements of that section, including having to occupy the dwelling as your main residence for a period of at least three months

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