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Edited version of private advice
Authorisation Number: 1051628089462
Date of advice: 5 February 2020
Ruling
Subject: Capital gains tax- disposal- ownership interest- main residence exemption
Question 1:
Do you have an ownership interest in the property for capital gains tax (CGT) purposes?
Answer 1:
Yes
Question 2:
Will the main residence exemption apply to disregard the capital gain you have made on the disposal of the dwelling?
Answer 2:
No.
This ruling applies for the following period:
Year ended 30 June 2019
Year ended 30 June 2020
The scheme commences on:
1st July 2018
Relevant facts and circumstances
Mr and Mrs Z owned a property and resided in the dwelling as their main residence.
Mr and Mrs Y (you) negotiated to buy half of the property for $X. You planned on selling your home (original home) and then building a duplex on the property to live in as your main residence.
At the time the property had a market value of $XX!
In anticipation of the payment, Mr and Mrs Z added your names to the title of the property as joint tenants.
Your original home was not sold and the money was not paid to Mr and Mrs Z. You continued to reside in your original home.
The duplex was not built.
The property was sold and settlement occurred.
A capital gain has been made.
You did not receive any of the proceeds from the sale of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-110
Income Tax Assessment Act 1997 section 118-130
Income Tax Assessment Act 1997 section 118-150
Reasons for decision
Question One
Section 118-130 of the Income Tax Assessment Act 1997 (ITAA 1997) states you have an ownership interest in land or a dwelling if:
- for land - you have a legal or equitable interest in it or a right to occupy it; or
- for a dwelling that is not a flat or home unit - you have a legal or equitable interest in the land on which it is erected, or a licence or right to occupy it; or
- for a flat or home unit - you have
- a legal or equitable interest in a stratum unit in it, or
- a licence or right to occupy it, or
- a share in a company that owns a legal or equitable interest in the land on which the flat or home unit is erected and gives you a right to occupy it.
Taxation Ruling TR 93/32 Income Tax: rental property - division of net income or loss between co-owners (TR 93/32) explains the basis upon which we will accept, for income tax purposes, the division of the net income or the loss from a rental property between the co-owners of that property. It also addresses the concept of ownership of a property.
Paragraph 8 states that generally, a legal interest in land is achieved by the owner being the registered proprietor of the legal title to the land.
A person's legal interest in a property is determined by the legal title to that property under the land law legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation.
In your case, you are registered on the title to the property. Therefore you have a legal interest in the property.
Question Two
Section 118-110 of the ITAA 1997 provides that a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence is disregarded. To qualify for a full exemption, the dwelling must have been your main residence for the whole period you owned it and must not have been used to produce assessable income.
Generally, if you build a dwelling on land you already own, the land does not start to qualify for an exemption under the main residence exemption provisions until the dwelling actually becomes your main residence.
Section 118-150 of the ITAA 1997 allows you to apply the main residence exemption to land for up to four years before you build a dwelling that becomes your main residence. You can only make this choice if the dwelling becomes your main residence as soon as practicable after the building work is finished and it continues to be your main residence for a minimum of three months
A mere intention to occupy a dwelling as your main residence without actually doing so is not sufficient to get the exemption.
In your case, you had an ownership interest in the property. We accept that you intended to build a duplex on the property and upon completion, reside in it as your main residence, even though this did not come to pass. However, the mere intention to construct a dwelling and to then occupy the dwelling as your main residence, without actually doing so, is insufficient to obtain the exemption.
Therefore, you will not be able to apply the main residence exemption upon the sale of your interest in the property.
Accordingly you are required to declare any capital gain in your tax return in the financial year the property is disposed of.