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Edited version of private advice
Authorisation Number: 1051614371375
Date of advice: 28 November 2019
Ruling
Subject: Sale of main residence- dwelling.
Question 1
Can you apply the main residence exemption, pursuant to section 118-150 of the Income Tax Assessment Act 1997 to dwelling 1?
Answer 1
Yes. As you moved into the newly built dwelling as soon as practicable after the construction and continued to use the dwelling as your main residence for more than a three month period. You can apply the main residence exemption for the relevant period (partial exemption).
Question 2
Will the sale of your ownership interest in dwelling 2 be considered a mere realisation of a capital asset?
Answer 2
Yes. Any proceeds from the sale of your ownership interest in the dwelling, represents a mere realisation of a capital asset which will fall for consideration under the capital gains tax provisions in Parts 3-1 and 3-3.
This ruling applies for the following periods:
Year ending 30 June 2019
Year ending 30 June 2020
Your employment required you to be second in another state under terms of your employment contract.
As your secondment period was nearing an end, you and your spouse intended to return to your home state and buy a property for main residence purposes.
That year you and spouse entered into a land contract as joint tenants, with family members and purchased a pair of semi-detached dwellings, on a single title.
As you did not have the balance of the purchase price in savings to acquire 100% of the property, it was agreed between both parties, the amount contributed by the family members would be exchanged for ownership interest in the property.
Due to your secondment agreement in another state being continued for over a 12 month period, it was decided to rent out the property under a residential tenancy agreement, which commenced on shortly after the dwelling was purchased.
While you were working away, assessments were conducted on the property to estimate costs of the renovations, the cost of demolishing the existing pair of semi-detached dwellings, subdivision of the Torrens title and construction of a new pair of semi-detached dwellings.
After comparing the above estimated costs and consulting with an independent planner, you concluded to knock down and re-build.
Development approvals were sought from the Council and approvals to commence work were received one month later.
The tenants vacated the dwellings on the shortly after, in anticipation of the construction to be undertaken.
Demolition commenced immediately after the tenants vacated.
The following year, you and your spouse returned to you home state following the conclusion of your secondment term.
You and your spouse resided in rental accommodation whilst the dwellings were under construction, during this time you both did not have another main residence.
The demolition and building works were conducted by a licenced professional builder as per the requirements of DA. The works performed by the builder pursuant to a subcontracting agreement.
You have provided the costs incurred in relation to subdivision and demolition.
You and your spouse incurred a proportionate amount in the subdivision and build of the dwellings.
Construction was completed. The works resulted in two equally sized registered Torrens title lots and, a new pair of semi-detached dwellings.
Once construction was complete you and your spouse moved into the dwelling.
It was planned to rent out the other dwelling, but due to financial hardship the dwelling was sold in the following to pay back amounts owing to the family members.
Due to financial hardship you decided to sell your main residence in order to reduce your mortgage some time later.
Neither of you or any related entities have any intentions or plans to be involved in any future property development or land subdivision activities.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-115
Income Tax Assessment Act 1997 Section 118-140
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-150
Income Tax Assessment Act 1997 Section 118-185
Income Tax Assessment Act 1997 Part 3-1
Income Tax Assessment Act 1997 Part 3-3