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Edited version of your written advice
Authorisation Number: 1051461952884
Date of advice: 17 December 2018
Ruling
Subject: Capital gains tax – main residence
Question
Will the Commissioner exercise his discretion to allow for an extension to the four-year time limit in accordance with paragraph 118-150(4)(a) of the Income Tax Assessment Act 1997?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2007
Year ended 30 June 2008
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
Year ending 30 June 2019
The scheme commences on:
1 July 2006
Relevant facts and circumstances
In mid-2006, you were gifted a parcel of land.
You engaged a building company to design, construct and build a property with the intention to use the dwelling as your main residence upon completion.
The building design was completed in September 2006.
You obtained the building permit in October 2006.
Building works commenced in December 2006
You ceased building works due to structural defects and you commenced legal action against building company.
You provided the building company the opportunity to rectify the defects.
The building company’s services were legally terminated in May 2009.
You obtained a new building permit in August 2010.
The existing frame was demolished and building recommenced.
The house was completed and you moved in and used it as your main residence.
The property was rented out in 2016.
The property was subsequently sold in 2018.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-110
Income Tax Assessment Act 1997 section 118-150
Reasons for decision
Section 118-150 of the Income Tax Assessment Act 1997 (ITAA 1997) allows for the extension of the main residence exemption to allow you to treat land as your main residence for up to four years if you build, repair or renovate a dwelling on the land that subsequently becomes your main residence.
Section 118-150 of ITAA 1997 provides that where you acquired an ownership interest in land and then built a dwelling, you can choose the dwelling to be your main residence from the time you acquired your ownership interest in the land, as long as the dwelling became your main residence as soon as practicable after the construction was finished, and it continued to be your main residence for at least three months.
There is a time limit during which the choice can operate. This is the shorter of four years before the dwelling becomes your main residence, or the period starting from when you acquired your ownership interest in the land and ending when the dwelling becomes your main residence.
Once you make the choice, no other dwelling can be treated as your main residence during that period.
Paragraph 118-150(4)(a) states the time limit is 4 years or a longer time allowed by the Commissioner, before the dwelling becomes your main residence.
The Commissioner would be expected to exercise the discretion in situations such as the following:
● When the taxpayer is unable to build, repair or renovate the dwelling within this time period due to circumstances outside their control. For example, the relevant builder becomes bankrupt and is unable to complete the building, repairs or renovations.
● When the taxpayer is unable to build, repair or renovate the dwelling due to unforeseen circumstances arising during this period. For example, the taxpayer or a family member has a severe illness or injury.
● In circumstances when building, repairing or renovating the dwelling within the four years would impose a severe financial burden on the taxpayer. For example, the taxpayer would be required to incur an excessively high level of debt relative to their income. Consequently, the taxpayer may spend time accumulating sufficient savings (relative to their income) to build, repair or renovate a reasonable dwelling relative to their circumstances.
In your case, construction of the dwelling on the land commenced within six months of you acquiring ownership interest. However, due to structural defects building works was ceased and legal action commenced against the building company causing construction to be delayed.
You applied for a new building permit within four years of receiving ownership interest in the land and moved into the dwelling as soon as practicable after construction was completed in May 2012.
As these delays were outside of your control the Commissioner will exercise his discretion to allow the main residence exemption for the longer time period between the when you acquired your ownership interest in the land and when you moved into the dwelling as your main residence.
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