Edited version of private advice

Authorisation Number: 1052038680438

Date of advice: 29 September 2022

Ruling

Subject: CGT - main residence

Question 1

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.

Question 2

Are you eligible to choose to treat your property as your main residence for the period you were not living in the property under section 118-145 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

You purchased a property in 20xx.

The property is less than two hectares in size.

After the purchase, the property was rented out and remained rented until sold.

You decided to rent out the property as you were not able to work regularly and were worried about the mortgage and expenses.

You provided evidence of various illnesses before and after the purchase.

You stated that you could not live on your own in the property due to your illness.

You had intended but never lived in this property.

The property was sold in December 20xx and settled in January 20xx

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 118-B

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-145

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, 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 intended for the property to be your main residence after you purchased it. It is also accepted that various illnesses prevented you from moving into the property. However, because you never resided in the property and established it as your main residence, you cannot treat it 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.

As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for CGT purposes even though you no longer live in it.

Section 118-145 of the ITAA 1997 allows you to treat a dwelling (that was your main residence) as your main residence indefinitely, if you do not use it for the purpose of producing assessable income.

However, if you do use it for that purpose, you can only treat the dwelling as your main residence for a maximum period of 6 years while you use it for that purpose. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.

As the property never became your main residence, you cannot use the section 118-145 to choose to treat it as your main residence.