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Edited version of your private ruling
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Ruling
Subject: Capital gains tax on the sale of property intended to be your main residence
Question and Answer
Will any capital gain or capital loss that you made on the sale of the property be disregarded?
No.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
Some time after 20 September 1985 you purchased a property (property A). This property was used as your main residence.
Some time later you purchased a property (property B) in a different state.
You purchased property B with the intention of making it your main residence. The main reason for moving into the property was to be closer to family and relatives and to be within an hour or so from your unwell parent who lives alone.
Some time later property A was placed on the market but it did not sell and settle for a significant period of time after protracted negotiations by the buyer with the local council concerning the intended use of the property.
During the ownership of property B it became evident that a mining interest was in negotiations with the state government for approval of a mining development.
After discussions with the mining company it became clear that the property was earmarked as part of the crude pit in the early stages of the mining development. As such the intended purpose of property B was shattered.
As a result of the mining operation obtaining approval from the state government there was no option other than to sell property B to the mining operation. The sale was finalised and settled some time during the 2010-11 income year.
But for the mining operation property B would have become your main residence as no evidence was brought to light that the mining operations were being considered via the necessary legal searches at the time of purchase.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20,
Income Tax Assessment Act 1997 Section 104-10 and
Income Tax Assessment Act 1997 Section 118-110.
Reasons for decision
Capital gains tax (CGT)
You make a capital gain or capital loss only if a CGT event happens to a CGT asset. The most common CGT event is CGT event A1, which happens when you dispose of an asset to someone else. The time of the event is when you enter into a contract for the sale, or if there is no contract, when the change of ownership occurs.
In some circumstances, an exemption may apply which allows, either in part or in full, any capital gain or loss to be disregarded. One of these exemptions is known as the main residence exemption.
Main residence exemption
You disregard a capital gain or loss from a CGT event that happens to your ownership interest in a property acquired on or after 20 September 1985 if:
· the dwelling on the property was your main residence for the whole of your ownership period;
· the property was not used to produce assessable income, and
· the land on which the dwelling is situated is two hectares or less.
However, in order for the main residence exemption to apply, you must have physically moved into the dwelling. The mere intention to occupy a dwelling as a main residence, without actually doing so, is not sufficient to obtain the main residence exemption.
Application to your circumstances
Although your intention was to occupy property B as your main residence, you did not do so. Therefore, you are not entitled to the main residence exemption and any capital gain or loss you make on the sale of property B cannot be disregarded.
While we appreciate the circumstances of your situation the Commissioner does not have the discretion to allow you to disregard any capital gain or capital loss that you have made.