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Ruling
Subject: Capital gains tax - Main residence - construction of dwelling
Question:
Is their a minimum period that a newly constructed dwelling must be your main residence to obtain a CGT exemption?
Answer:
Yes.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts:
You and your fiancée purchased a block of land after 20 September 1985.
You and your fiancée constructed a dwelling on the land, with completion occurring less than four years after purchase.
You moved into the dwelling as soon as practicable after completion.
You and your fiancée have separated.
You will sell the dwelling as part of a property settlement.
Settlement of the contract for sale will occur more than three months after you occupied the dwelling as your main residence.
Relevant legislative provisions:
Income Tax Assessment Act 1997 section 118-150.
Income Tax Assessment Act 1997 paragraph 118-150(3)(a).
Income Tax Assessment Act 1997 paragraph 118-150(3)(b).
Capital Gains Tax
A capital gain or a capital loss may arise if a capital gains tax event (CGT event) occurs to a capital asset. The disposal of the dwelling, which is a CGT asset, causes a CGT event A1 to occur under the Income Tax Assessment Act 1997 104-10. (ITAA 1997) You dispose of an asset when a change of ownership occurs from you to another person or entity.
The main residence exemption is generally available to you, if a property is actually used or occupied as a main residence for all of your ownership period.
Section 118-150 of the ITAA 1997 deals with building, repairing or renovating a dwelling on land in which a taxpayer has an ownership interest. Under section 118-150, you can choose to extend the main residence exemption for the dwelling to include the shorter period of:
· 4 years before the dwelling becomes the taxpayer's main residence; or
· the period starting from when the taxpayer acquired their ownership interest in the land and ending when the dwelling becomes their main residence.
However, you can make this choice only if the dwelling:
· becomes their main residence as soon as practicable after the dwelling is built, repaired or renovated (paragraph 118-150(3)(a) of the ITAA 1997); and
· continues to be their main residence for at least 3 months (paragraph 118-150(3)(b) of the ITAA 1997).
Conclusion
You will not be subject to capital gains tax as you will occupy the property for a period of more than three months.