Edited version of private advice

Authorisation Number: 1051996910350

Date of advice: 14 July 2022

Ruling

Subject: CGT - main residence

Question

Are you entitled to apply the main residence exemption for up to 2 hectares to the property and disregard the capital gain or loss you made on the disposal?

Answer

No.

This ruling applies for the following period:

Year ended XX June 20XX

The scheme commences on:

XX July 20XX

Relevant facts and circumstances

You purchased the property which is more than two hectares.

You intended to build on the land but were unable to secure a loan.

You purchased a caravan to live in on the property.

You did not treat any other property as your main residence while you owned the property.

You have not used the land to produce assessable income for the whole period you owned it.

You signed a contract to sell the property.

The property was settled and the title was transferred.

You sold the caravan separately approximately one month before signing the contract to sell the property.

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 118-120

Income Tax Assessment Act 1997 section 118-165

Income Tax Assessment Act 1997 section 118-185

Reasons for decision

Summary

You sold the dwelling in a separate transaction prior to selling the property. There was no dwelling attached to the property when it was sold. Therefore, the main residence exemption cannot be applied to disregard any capital gain that you make when you sold the property under section 118-165 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss you make from a (CGT) event that happens in relation to a CGT asset that is a dwelling or your ownership in it is disregarded if you are an individual and the dwelling was your main residence throughout your ownership period.

For the purposes of the main residence exemption, a dwelling includes a unit of accommodation that is a building, or is contained in a building, and consists wholly or mainly of residential accommodation, a unit of accommodation that is a caravan, houseboat or other mobile home, and any land immediately under the unit of accommodation as per section 118-115 of the ITAA 1997.

However, subsection 118-120(2) of ITAA 1997 specifies that the total of the land (including the land on which the dwelling is situated must not exceed 2 hectares. Any land exceeding two hectares is subject to CGT.

You are also eligible for a partial exemption for a CGT event that happens to a dwelling or your ownership interest in it under section 118-185 where the dwelling is the individual's main residence for only part of the ownership period. The dwelling is considered to be your main residence from the time you move in.

However, section 118-165 of the ITAA 1997 states that the exemption does not apply to a CGT event that happens in relation to land, or a garage, storeroom or other structure if that event does not also happen in relation to the dwelling or your ownership interest in it.

Application to your circumstances

In your case, you purchased a property which was over two hectares. You placed a caravan on the property to live in it as your main residence sometime after you purchased the property.

A caravan satisfies subsection 118-115(1)(b) of the ITAA 1997 as it can be considered a dwelling for main residence purposes.

However, you sold the caravan separately approximately one month before the sale of the property.

You are not entitled to the main residence exemption as the caravan was sold in a separate transaction to the property. You do not meet the conditions under section 118-110 of ITAA 1997. The main residence exemption is also denied by section 118-165 of the ITAA 1997.

Therefore, you are not entitled to disregard any capital gain or loss made on the sale of your property.