Edited version of private advice

Authorisation Number: 1052101302278

Date of advice: 28 March 2023

Ruling

Subject: CGT - main residence exemption

Question

Are you entitled to disregard the capital gain on the property?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your spouse separated in XXXX.

You were renting properties for you and your children to live in after the separation.

A court order restricted you from moving more than XXX from your children's school at the time to facilitate the 50-50 care arrangements you and your ex-spouse had for the children.

You purchased a property for $XXXX in March XXXX.

You wanted to move into the property as your main residence after settlement.

Despite your intention to establish the property as your main residence, you could not move due to the court order restricting you from moving more than XXXX from the children's school.

You rented the property out.

You sold the property and made a capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Reasons for decision

You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss.

You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it.

You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it.

Capital gains tax is not a separate tax, it forms part of your assessable income and is taxed at your marginal tax rate.

CGT - main residence

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income.

In your case you never lived in the property. As The Property has never been established as your main residence, section 118-110 of the ITAA 1997 will not apply to exempt any capital gain that results from the disposal of the Property from being assessable in the year it was disposed.

In addition to it not being your main residence you rented the Property out and derived rental income from it./p>

You must declare your capital gain in your tax return.

The Commissioner does not have any discretion under the legislation to allow you to disregard your CGT liability.

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