Edited version of private advice

Authorisation Number: 1052092577503

Date of advice: 8 March 2023

Ruling

Subject: CGT - disposal - main residence exemption

Question

Can you disregard the capital gain you will make on the disposal of the Dwelling?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

On XX November 20XX Person A and Person B acquired some land.

Shortly after they acquired the land, Person A and Person B (You) signed a contract to build a house on the land.

You intended to move into the house once the build was complete (The Dwelling).

On XX January 20XX You sold your previous home and began renting a property while the Dwelling was being built. You do not own any other property.

There were significant delays and complications during the build. The official property completion and handover date for the Dwelling was not until XX November 20XX.

During the build, Person A experienced significant illness, which was caused by the prolonged building process and the complications that arose. As a result, they were hospitalised.

Person A is unfit to live in the Dwelling and their health would deteriorate significantly if they were required to do so. You did not move into the Dwelling.

You have moved to a different area so that Person A can continue with their medical treatment as an outpatient.

The Dwelling will be sold within the period of this ruling.

You expect to make a capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-150

Reasons for decision

Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence.

To receive a CGT main residence exemption section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) states:

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 interest in it is disregarded if:

(a)  you are an individual; and

(b)  the dwelling was your main residence throughout your ownership period; and

(c)   the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.

The main residence exemption is extended by certain provisions.

Subsection 118-150(1) applies to land in which you have an ownership interest (except a life interest) if you build a dwelling on the land, or repair, renovate or finish building a dwelling on the land.

You can choose to apply this subdivision as if the dwelling that you are building, repairing or renovating on the land were your main residence from the time you acquired the ownership interest.

However, subsection 118-150(3) of the ITAA 1997 says you can only make the choice only if:

(a)  a dwelling on the land that you construct, repair or renovate becomes your main residence (except because of section 118-147) as soon as practicable after the work is finished; and

(b)  it continues to be your main residence for at least 3 months.

Application to your situation

In your case, you acquired some land and later built a Dwelling on it. Once construction of The Dwelling was completed, you did not move into The Dwelling and occupy The Dwelling for a period of more than three months. Therefore, the conditions of subsection 118-150(3) of ITAA 1997, as outlined above, have not been met.

We recognise that Person A had health issues that impacted upon your ability to move into the Dwelling, however, a mere intention to occupy a dwelling as your main residence, without actually doing so, is not sufficient to obtain the exemption.

In addition, please note that the Commissioner does not have any discretion to allow you to disregard a capital gain or capital loss where no exemption is available to you under the taxation law.