Edited version of private advice

Authorisation Number: 1051834734232

Date of advice: 5 May 2021

Ruling

Subject: CGT - main residence exemption

Question 1

Can you apply the main residence exemption on the disposal of your property?

Answer

No

Question 2

Can you apply the 50% discount to the capital gain on disposal of the property?

Answer

Yes

This ruling applies for the following period:

30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You purchased a block of land with an initial deposit on xx xxx xxxx with the intention to build a residential property in which you and your partner would reside.

A building contract was executed by you and the construction of your dwelling commenced on xx xxx xxxx with construction being completed.

You experienced a relationship breakdown during this period and so you decided to sell the property. The property sold and settlement occurred.

You never lived in the property but chose to remain residing with your parents

All your belongings are at your parent's property.

You use your parents address as your postal address and the address for electoral enrolment.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subdivision 115-A

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-135

Income Tax Assessment Act 1997 section 118-150

Reasons for decision

These reasons for decision accompany the Notice of private ruling for client.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Main residence exemption - building a new home

Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence (section 118-110 of the ITAA 1997).

In order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it (section 118-110 and 118-185 of the ITAA 1997), must not have been used to produce assessable income (section 118-190 of the ITAA 1997) and any land on which the dwelling is situated should not be more than two hectares.

Furthermore, for this exemption to apply it must be established that a property is your main residence or home. Whether a dwelling is an individual's principle residence depends on the facts of each case. The factors will be relevant when working out whether your dwelling is your main residence:

•         The length of time you have lived there

•         Your personal belongings in the house

•         Where your mail gets delivered

•         Connection of services

•         Your electoral role address and

•         Your intention to occupy the dwelling

A mere intention to construct or occupy a dwelling as your main residence without doing so is not sufficient to obtain the exemption. (Quick code 62635 - Guide to capital gains tax 2020).

Treating land as your main residence while you build

If you are building a home on vacant land, you can choose to treat your land as your main residence for up to four years before you move into the home, only under certain circumstances.

You must first finish building, repairing or renovating the dwelling and:

•         have an ownership interest in the land

•         move into the dwelling as soon as practicable after it is finished, and

•         continue to use the dwelling as your main residence for at least three months after it becomes your main residence.

If you choose to treat your land as your main residence while you build, you cannot treat any other dwelling as your main residence for the same period, except for a limited time under the moving from one main residence to another rule.

You chose not to move into your dwelling upon completion. The land and building are treated as one asset and cannot be separated for CGT purposes, as they are post 20 September 1985.

In your case, you purchased a block of land in xxxx and construction of the dwelling commenced in xxxx and was completed in xxxx. The property was then sold and settlement occurred on xx xxx xxxx without you ever residing in the property.

When the construction of the dwelling commenced you did have every intention to move into this dwelling but due to a relationship breakdown you never actually resided in the dwelling upon completion. A mere intention is not enough to obtain the exemption.

As the dwelling was disposed of after completion, you cannot disregard the capital gain or loss under the main residence exemption.

Question 2

Discount capital gain

Section 115-5 of the ITAA 1997 states that a discount capital gain is a capital gain that meets the requirements of sections 115-10, 115-15, 115-20 and 115-25. Section 115-10 of the ITAA 1997 states that:

To be a discount capital gain, the capital gain must be made by:

a)    an individual; or

b)    a complying superannuation fund; or

c)    a trust; or

d)    a life insurance company in relation to a discount capital gain

As you are an individual who has made a capital gain, you have satisfied this requirement. Section 115-15 of the ITAA 1997 requires that the discount capital gain must be made after 21 September 1999. As the CGT event for the vacant block of land was purchased in xxxx, you have satisfied this requirement.

To be a discount capital gain under Section 115-20 of the ITAA 1997 requires that the discount capital gain must be worked out using a cost base that is not referenced to indexation at any time.

Section 115-25 requires that the discount capital gain must be on an asset acquired at least 12 months before. The acquisition date is at least 12 months prior in xxxx and you have satisfied this requirement. Where you satisfy the requirements of sections 115-10, 115-15, 115-20 and 115-25 you can reduce your discount capital gain by 50% (section 115-100 of the ITAA 1997).

In your case, as you have satisfied all of the requirements under section 115-5 of the ITAA 1997, you are entitled to claim a 50% discount on your capital gain.

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