| Disclaimer This edited version has been archived due to the length of time since original publication.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 private ruling
Authorisation Number: 1011831484251
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Capital gains tax - main residence
Question 1
Did you move into your dwelling as soon as practicable after it was completed?
Answers
No.
Question 2
Will you be fully exempt from capital gains tax on the sale of your dwelling?
Answers
No.
This ruling applies for the following period
Year ended 30 June 2011.
The scheme commenced on
1 July 2005.
Relevant facts
You purchased a vacant lot in 200X to build a dwelling on.
You intended to move into the dwelling immediately after it was completed.
The dwelling was completed in 200X.
After arranging for the dwelling to be built, you were informed of health problems with your family.
You were living in rental accommodation while the dwelling was being built.
During the time the dwelling was under construction, you travelled overseas due to your family's health problems.
During your time overseas, the dwelling was completed and rented out.
The dwelling was rented from 200Y until 200Z.
You returned to Australia when your family member's health stabilised in 200Z.
You moved into the dwelling in 200Z.
You sold the dwelling in the following year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-135
Income Tax Assessment Act 1997 Section 118-185
Reasons for decision
Main residence:
As a general rule, you can disregard any capital gain or capital loss realised on the disposal of a dwelling that was your main residence.
Generally, to get the full exemption from capital gains tax (CGT) the following conditions must be met:
· you are an individual;
· you moved into the dwelling as soon as practicable;
· the dwelling must not have been used to produce assessable income; and
· the dwelling was your main residence throughout your ownership period.
Moving into the dwelling as soon as practicable:
Section 118-135 of the Income Tax Assessment Act 1997 (ITAA 1997) extends the main residence exemption to take into account the time needed to move into a dwelling. The section allows you to treat a dwelling as your main residence for the period from when you acquired it until it was first practicable to move into it.
The term 'as soon as practicable' in section 118-135 of the ITAA 1997 is used to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the dwelling became your main residence on the date you acquired it; that is, you would have to physically move in on the day of settlement.
The Explanatory Memorandum to the Bill which became the Tax Law Improvement Act (No.1) 1998, indicates that section 118-135 of the ITAA 1997 is intended to apply in situations where moving into the dwelling is temporarily delayed due to matters outside the persons control. The provision takes into account situations where, for example, there is a delay in moving in because of illness or other reasonable cause.
The examples provided in Taxation Determination TD 92/147 illustrate the type of situations envisaged.
The factors against concluding that you moved into the dwelling as soon as practicable include:
· the length of time between the date the dwelling was completed and the date you first occupy it; and
· what the dwelling is used for during that period (earning rental income).
In this case, while there were unforseen circumstances relating to your family's health problems, the dwelling was rented out during your time overseas and there was a significant time delay from when the dwelling was completed and when you moved in. As a result, you have not moved into the dwelling as soon as practicable and will not be fully exempt from CGT.
Please note: You may be entitled to a partial exemption from CGT for the time you commenced living in the dwelling until it was sold.