Edited version of your written advice

Authorisation Number: 1051419958412

Date of advice: 27 August 2018

Ruling

Subject: Commissioner’s discretion

Question

Will the Commissioner exercise his discretion and extend the four year period in accordance with subsection 118-150(4)(a) of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2017

The scheme commences on:

1993

Relevant facts and circumstances

Acquisition of the land

You acquired vacant land approximately 17 years ago.

You acquired the property for a specified amount, financed by a bank mortgage.

You intended on building a home on the land and living there.

You were living with your parent.

At the time you acquired land, you were employed.

Your employer (Employer A) commenced large-scale redundancies which continued for a number of years.

Several years later, you were made redundant from your employment with Employer A.

You continued living with your parent at this time.

You continued paying the mortgage taken out to acquire the land.

You subsequently supported yourself through:

● Casual work

● Income from share trading activities

● Redundancy monies

● Bank loans

● Family loans

You were unable to find permanent full-time employment.

You completed some courses Employer A offered as part of its redundancy package including interview techniques and how to apply for jobs.

Around this time, one of passed away.

When your health improved, you started looking for a job and also ceased the share trading activities.

You also received an unemployment benefit when your redundancy monies ran out, as you were unable to find work.

You found a fulltime but temporary contract job with Employer B.

You subsequently found another temporary position with Employer C.

You then commenced further studies before commencing another casual role with Employer B.

You continued studying and you were made fulltime casual.

You subsequently obtained a fulltime contract role, and after sometime were employed on a permanent fulltime basis.

You had accumulated some level of debt.

You then felt financially secure enough to be able to meet the financial commitment of a further loan to fund the building of a dwelling on the land.

More than 15 years after acquiring the land, you commenced building a dwelling.

You have provided details of the construction costs.

Approximately one year later, the dwelling was completed and you immediately moved in and established the dwelling as your main residence.

You planned for family members to move in with you and help with your mortgage.

Your parent had been suffering from an illness and as a result it was decided they remain in their own home, rather than move in with you.

After a number of months assisting your sick parent you decided to move out and live with your parent due to their declining health.

The dwelling was rented out from this point until it was sold a few years later.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-150

Reasons for decision

Summary

The Commissioner will not exercise his discretion to extend the four year period under section 118-150.

Detailed reasons

Section 118-150 of the Income Tax Assessment Act 1997 (ITAA 1997) extends the CGT main residence exemption to allow you to treat land as your main residence for up to four years if you build, repair or renovate a dwelling on the land that subsequently becomes your main residence.

Part 18 of the Tax Laws Amendment (2011 Measures No. 2) Bill 2011 amended section 118-150(4)(a) to give the Commissioner a discretion to extend this period where a taxpayer does not build, repair or renovate a dwelling and establish it as their main residence within four years. The amendment received Royal Assent on 27 June 2011 and applies to CGT events that happen after that date.

The Commissioner would be expected to exercise the discretion in situations such as the following:

● When the taxpayer is unable to build, repair or renovate the dwelling within this time period due to circumstances outside their control. For example, the relevant builder becomes bankrupt and is unable to complete the building, repairs or renovations.

● When the taxpayer is unable to build, repair or renovate the dwelling due to unforeseen circumstances arising during this period. For example, the taxpayer or a family member has a severe illness or injury.

● In circumstances when building, repairing or renovating the dwelling within the four years would impose a severe financial burden on the taxpayer. For example, the taxpayer would be required to incur an excessively high level of debt relative to their income. Consequently, the taxpayer may spend time accumulating sufficient savings (relative to their income) to build, repair or renovate a reasonable dwelling relative to their circumstances.

In your situation

It is accepted that you established the dwelling as your main residence when it was completed and are therefore seeking to treat the land as your main residence for the period from its acquisition date (for an extended period of time).

The Commissioner will not exercise his discretion to extend the four year period under section 118-150 as you have not demonstrated that you were unable to build the dwelling due to unforeseen or circumstances outside your control. You have not satisfied the Commissioner that building within the four year period, would have imposed a severe financial burden. You have not demonstrated any ongoing attempts to build and establish the dwelling as your main residence during the relevant period for in excess of 15 years. You did not have a specific plan to build and establish the dwelling as your main residence, but indefinitely postponed the construction of dwelling to a later date.