Edited version of private advice

Authorisation Number: 1052165296568

Date of advice: 7 September 2023

Ruling

Subject: CGT - main residence exemption

Question 1

Does capital gains 4-year exemption rule apply for the period from the date of purchase of the property to the time the taxpayer moved into the property, being XXX to XXX?

Answer

Yes. Section 118-150 of the of the Income Tax Assessment Act 1997 (ITAA 1997) allows land on which a dwelling is being built, renovated or repaired to be treated as the taxpayer's main residence for a maximum period of 4 years even though the taxpayer is not occupying it as their main residence: where all the following conditions are satisfied

(1) The dwelling must become the taxpayer's main residence "as soon as practicable after the work is finished.

(2) The dwelling must continue to be the taxpayer's main residence for at least 3 months.

(3) If a choice is made to apply the concession, no other dwelling can be treated as the taxpayer's main residence in the period during which the concession applies.

Section 118-150(4) of the ITAA 1997 provides that the exemption will apply for the shorter of the following periods:

(a) the 4 years before the dwelling became the taxpayer's main residence; or

(b) the period from when the taxpayer acquired the land until the dwelling became the taxpayer's main residence.

In your case you have satisfied the above conditions therefore, the 4-year exemption rule will apply for the period from XXX to XXX.

Question 2

Does the 6-year main residence exemption apply for capital gains purposes for the period the property was leased being, from XXX to XXX?

Answer

Yes. The absence rule under section 118-145 of the ITAA 1997 allows a taxpayer to treat a property as their main residence for up to 6 years when rented out as long as they are choosing to treat no other dwelling as their main residence for the same period.

In your circumstances, you are entitled to the main residence exemption for the period from XXX to XXX.

This ruling applies for the following period:

1 July XXXX

The scheme commenced on:

30 June XXXX

Relevant facts and circumstances

On XXX you purchased a property as a sole owner at XXX.

The existing dwelling on the property was derelict, not connected to services and not tenanted.

You obtained the necessary council approval/s, demolished the existing swelling, cleared, and prepared the land for a new house to be built.

On XXX you entered in a contract to build a new house on the property.

You moved into the house with your former partner on the XXX.

Following an employment opportunity, you moved out with your former partner and leased the property on XXX. You lived in a house your former partner purchased as a sole owner.

Your property continued to be leased and eventually sold.

You chose to elect your property as the main residence for the period from XXX to the XXX this being the full 6-year exemption period.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-150

Income Tax Assessment Act 1997 section 118-150(4)

Income Tax Assessment Act 1997 section 118-145