Edited version of private advice

Authorisation Number: 1052173815468

Date of advice: 6 October 2023

Ruling

Subject: CGT - main residence exemption

Question

Are you eligible for the main residence exemption on the disposal of the Property?

Answer

No.

This ruling applies for the following periods:

1 July 20XX to year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

On or around DD MM 20XX, you and Person A paid a holding deposit for a house and land package at the Property.

You intended the Property to be your main residence upon completion.

You experienced a relationship breakdown on or around DD MM 20XX.

Construction of the dwelling commenced on or around DD MM 20XX.

Construction was completed MM 20XX.

You have not moved into the Property.

Due to your current personal circumstances, you will not be moving into the Property.

The Property will be listed for sale.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subdivision 115-A

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-135

Income Tax Assessment Act 1997 section 118-150

Reasons for decision

Question

Are you eligible for the main residence exemption on disposal of the Property?

Summary

No. Notwithstanding your personal circumstances, a mere intention to construct or occupy a dwelling as your main residence without doing so is not sufficient to obtain the main residence exemption under the relevant legislation. There is no discretion available to us to be able to allow a main residence exemption on the sale of the dwelling if you never lived in the dwelling, no matter how valid your reason for not being able to move into the dwelling. You will be liable for tax on any capital gain made on the disposal of the Property. However, you will be entitled to claim a 50% discount on any capital gain because the acquisition date will be more than 12 months prior to the date of disposal.

Detailed reasoning

Main residence exemption - building a new home

Pursuant to section 118-110 of the Income tax Assessment Act 1997 (ITAA 1997), you can ignore a capital gain or capital loss from a capital gains tax (CGT) event that happens to a dwelling that is your main residence.

In order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it, must not have been used to produce assessable income and any land on which the dwelling is situated should not be more than two hectares.

In determining whether a property is a taxpayer's main residence, consideration is to be given to the facts of the case, as it is a question of fact.

For this exemption to apply, it must be established that a property is your main residence or home. The factors below will be relevant when working out whether your dwelling is your main residence:

•         The length of time you have lived there

•         Your personal belongings in the house

•         Where your mail gets delivered

•         Connection of services

•         Your electoral role address and

•         Your intention to occupy the dwelling.

A mere intention to construct or occupy a dwelling as your main residence without doing so is not sufficient to obtain the exemption.

Treating land as your main residence while you build

If you are building a home on vacant land, you can choose to treat your land as your main residence for up to four years before you move into the home, only under certain circumstances.

You must first finish building, repairing or renovating the dwelling and:

•         have an ownership interest in the land

•         move into the dwelling as soon as practicable after it is finished, and

•         continue to use the dwelling as your main residence for at least three months after it becomes your main residence.

If you choose to treat your land as your main residence while you build, you cannot treat any other dwelling as your main residence for the same period, except for a limited time under the moving from one main residence to another rule.

In your case, you purchased a block of land in MM20XX; construction of the dwelling commenced in MM 20XX and was completed in MM 20XX. We accept that you intended to move into the dwelling upon completion but due to a relationship breakdown, the Property will be sold without you ever residing in the dwelling.

As noted above, a mere intention to occupy a dwelling as your main residence without doing so is not sufficient to obtain the main residence exemption. There is no discretion available to us to be able to allow a main residence exemption on the sale of the dwelling if you never lived in the dwelling, no matter how valid your reason for not being able to move into the dwelling. This means you cannot disregard any capital gain or loss under the main residence exemption. You will be liable for tax on any capital gain made on the disposal of the Property. However, you will be entitled to claim a 50% discount on any capital gain because the acquisition date will be more than 12 months prior to the date of disposal.