Edited version of private advice

Authorisation Number: 1052269308145

Date of advice: 3 July 2024

Ruling

Subject: CGT - main residence exemption

Question

Are you able to apply the main residence exemption for the sale of your property?

Answer

No.

This ruling applies for the following period:

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

In XXXX 20YY, you and your spouse purchased vacant land.

You commenced building a property on the land with a builder and connected electricity services to the property at this time.

Your stated intention was to build a dwelling on the land and occupy this property as a primary residence.

During the construction of your new home due to personal circumstances the decision was made to sell the property.

In XXXX 20YY, the property was completed by the builder and the keys of the property provided to you.

You moved minimal items into the property after its completion. You moved a mattress into the property and a bar fridge.

You slept at the property between X or X days a week while you were working on the property to prepare it for sale.

You did not live at the property full time as you were residing at Property B as you were a caretaker at this property and stayed here.

You did not change your address on your driver's license nor the electoral roll.

You sold the property in XXXX 20YY.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Reasons for decision

You make a capital gain or capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset (section 102-20 of the ITAA 1997).

CGT event A1 will happen when you sell your ownership interest in a property (section 104-10 of the ITAA 1997).

Generally, you can ignore a capital gain or capital loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence (section 118-110 of the ITAA 1997). To obtain the full exemption:

•         The dwelling must have been your home for the whole period you owned it;

•         You must not have used the dwelling to produce assessable income; and

•         Any land on which the dwelling is situated must be 2 hectares or less.

Section 118-135 of the ITAA 1997 provides that if the dwelling is moved into as soon as is practicable after the ownership interest was acquired, the dwelling is treated as the individual's main residence since the time that the ownership interest was acquired. However, the Explanatory Memorandum to the Tax Law Improvement Bill (No. 1) 1998 (the Explanatory Memorandum) explains that section 118-135 of the ITAA 1997 is not extended to the situation where an individual who acquires an ownership interest in a property is unable to move into the dwelling because it is being rented out.

Whether a dwelling is a taxpayer's sole or principal residence is an issue which depends on the facts in each case. Some factors may include, but are not limited to:

•         the length of time the taxpayer has lived in the dwelling

•         the place of residence of the taxpayers' family

•         whether the taxpayer has moved his or her personal belongings into the dwelling

•         the address to which the taxpayer has his or her mail delivered

•         the taxpayers address on the Electoral Roll

•         the connection of services such as telephone, gas and electricity

•         the taxpayers' intention in occupying the dwelling.

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

Section 118-145 of the ITAA 1997 provides that once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence during periods of absence. When the dwelling is left vacant, you may continue to treat the dwelling as your main residence for an indefinite period. When you choose to do this, you are making an absence choice.

Application to your circumstances

We have taken the following facts into consideration in determining whether you established the property as a main residence:

•         You lived in the property for X or X days a week after receiving the keys in XXXX 20YY.

•         You moved a blow-up mattress into the property and a bar fridge.

•         You connected electricity services to the property.

•         You did not update your mailing address to the property.

•         You were living at a separate property.

•         Your stated intention was to build the property to live in as a principal place of residence.

In your circumstances it is clear that you have not established the property as a main residence during your brief stay within the property. Your stay within the property lacks a degree of permanence that would be expected when establishing a property as a main residence. Based on your circumstances you are not eligible for the main residence exemption.