Edited version of private advice

Authorisation Number: 1051996186689

Date of advice: 22 June 2022

Ruling

Subject: CGT - main residence

Question

Are you entitled to apply the main residence exemption to disregard the capital gain or loss you make when you dispose of the property?

Answer

No.

This ruling applies for the following periods:

The year ended 30 June 20XX

The year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In 20XX you purchased the property with your ex-spouse.

The property is less than two hectares in size.

The property was purchased under a house and land package. You intended that the property become you and your ex-spouse's principal place of residence after the house construction was complete.

You were granted a duty exemption in relation to your purchase of the property.

In 20XX, you and your ex-spouse separated on a final basis however are not yet divorced.

In 20XX you received a letter from your ex-spouse's solicitor regarding the proposed settlement of your property affairs. The property was to be sold as soon as possible when the landscaping works were competed.

Later you were provided with a certificate of occupancy for the property.

Your ex-spouse's solicitor, by letter, denied you occupancy of the property.

You and your ex-spouse have signed a sale agency agreement with a real estate agent and the property was prepared for the market to be sold thereafter.

You never resided in the property.

You have been renting a separate property.

You do not own any other property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Reasons for decision

Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) provides an exemption for a capital gain or loss from certain CGT events that happen in relation to a taxpayer's main residence. Section 118-110 of the ITAA 1997 provides that a capital gain or loss you make from a CGT event that happens in relation to your dwelling or your ownership interest in it is disregarded if you are an individual and the dwelling was your main residence throughout your ownership period.

Whether a dwelling is a taxpayer's main residence depends upon the facts of each case. Generally, a dwelling is considered to be your main residence if:

•         You and your family live in it

•         Your personal belongings are in it

•         It is the address your mail is delivered to

•         It is your address on the electoral roll

•         Services such as gas and power are connected.

The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant.

In Couch & Anor v Federal Commissioner of Taxation [2009] AATA 41 at paragraph 14, however, the Tribunal confirmed that the 'mere intention to occupy a dwelling as a sole or principal residence, but without actually doing so, is insufficient to obtain the exemption.'

It is accepted that you received a duty exemption in relation to your purchase of the property. It is also accepted that you intended for the property to be your main residence after the construction of the dwelling was complete. However, because you never resided in the dwelling on the property, you cannot treat the property as your main residence under section 118-110 of the ITAA 1997.

Therefore, you are not entitled to apply the main residence exemption to disregard the capital gain or loss you make when you dispose of the property.