Edited version of private advice

Authorisation Number: 1052270634405

Date of advice: 10 July 2024

Ruling

Subject: Main residence exemption

Question

Are you entitled to claim the CGT main residence exemption on your ownership interest when you sell the country property?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your spouse own a property in a country region (the country property).

You and your spouse acquired the property in 20XX.

The size of the country property is XX acres.

You did not move into the country property immediately after purchasing it.

You own another property in a metro region (the city property) which you purchased as your home many years before the country property.

You have never put the city property on the market for sale since you acquired it.

You did not move your furniture from the city property to the country property.

You purchased new furniture for the country property.

The country property is fully furnished. You have some personal belongings there as needed.

You did not move into the country property as your permanent residence due to the state of the repairs and renovations required to make it habitable.

You commenced a number of repairs and maintenance since purchasing the country property.

Your spouse lives at the city property as their main residence.

Your spouse stays closer to your adult child (at the city property) who requires support.

Your adult child lives at their own residence.

From the date you first acquired the country property, you and your spouse stayed there on and off as the property required extensive renovations.

You retired approximately X years ago and wanted to use the country property for primary production purposes for extra income in addition to your superannuation.

You bought large machinery to improve the property and prepare the land to use for primary production.

You stayed at the country property on and off more regularly from XXXX until present completing work on the property to prepare it for primary production purposes.

You worked X hour days at the country property for a minimum of a week at a time. You would then go to the city property to rest and spend time with your spouse and adult child.

Your spouse stays at the country property on odd occasions when they are not supporting your adult child.

You went back to work on a casual basis to earn money to restore the country property approximately X years ago.

Hours of work vary from X-to-X hours for a maximum of X days a week.

Depending on the location of your work site, you would stay at the country property or hotels for country work and the city property when you have metro work.

You repair equipment at the city property as this is closer proximity for acquiring parts.

You have not produced any income from the country property.

You initially had your mail delivered via the local post office. This has now stopped as you now do this digitally via a laptop.

The country property has the following services:

•         Electricity

•         Phone line

•         LPG gas bottles

•         Water via water tanks.

Your electoral and licence address is at the city property.

You advised your local police in the country region that you are based in the country region, but you go to the metro region for family issues and occasional work. You decided this as you have no internet or phone, and mail is not prompt in the country region.

You intend to sell the country property during the 20XX-XX income year.

You intend to stay at the country property for a total of x months full time during the 20XX-XX income year to continue renovations and repairs to prepare the property for sale. You intend to continue to travel and stay between both the country property and the city property to assist your adult child and your spouse who has become ill, and for work.

Assumptions

It is assumed that your stays at the country property during the 20XX-XX income year will be consistent with your stated intentions.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-150

Income Tax Assessment Act 1997 section 118-140

Income Tax Assessment Act 1997 section 118-135

Income Tax Assessment Act 1997 section 115-25

Reasons for decision

Summary

Having considered the relevant facts, the Commissioner is not satisfied that under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) the country property was your main residence for any period from the date of your acquisition. Therefore, a main residence exemption is not applicable when you dispose of your share in the country property.

Detailed reasoning

Section 104-10 of the ITAA 1997 states that a CGT event happens when a CGT asset is disposed of, if there is a change in ownership of the CGT asset, or if the taxpayer stops being the legal owner of the asset.

Section 108-5 of the ITAA 1997 states that a CGT asset is any kind of property, or a legal or equitable right that is not property.

Main Residence Exemption

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.

Section 118-110 of the ITAA 1997 explains that if you dispose of your ownership interest in a dwelling that is your home, any capital gain or capital loss may be disregarded. This is called the main residence exemption and applies to the dwelling and up to two hectares of land underneath the dwelling used in connection with it.

To be entitled to the full exemption, you must move into the dwelling as soon as practicable after you obtain your ownership interest in it and you must reside in it throughout your ownership interest. If you own more than one dwelling, only one of them can be your main residence at any one time.

The exception to this rule is if you move from one main residence to another and then sell your original main residence. In this case you can treat two dwellings as your main residence for a limited time up to a possible maximum of six months.

Section 118-150 of the ITAA 1997 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.

You can 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.

There is a time limit during which the choice can operate. This is the shorter of:

(a) 4 years, or a longer time allowed by the Commissioner, before the dwelling becomes your main residence; and

(b) the period starting when you acquired your ownership interest in the land and ending when the dwelling becomes your main residence.

If there was already a dwelling on the land when you acquired your ownership interest and you or someone else occupied it after that time, the period in subsection (2) and paragraph (4)(b) starts when the dwelling ceased to be occupied.

Once you make the choice, no other dwelling can be treated as your main residence during the period referred to in subsection (4), except if section 118-140 of the ITAA 1997 (about changing main residences) applies.

Application to your circumstances

You and your spouse purchased the country property to be able to retire and produce income to support yourself and your spouse in addition to your superannuation. You and your spouse did not move into the property on a permanent basis since acquiring it as the property required extensive renovations and repairs. You and your spouse also own another property (the city property).

You did not move your furniture from the city property to the country property, you purchased new furniture for the country property. You have stayed at the country property on and off more regularly in recent years depending on your location of work for your employer and when you are doing repairs and maintenance on the property. Your license and electoral address are still at the city property. Your spouse lives at the city property as their main residence. Your spouse stays with you at the country property on occasion as they also provide support for your adult child who lives in a closer proximity to the city property.

Although we appreciate that you purchased the country property to produce assessable income and intended to move to the property permanently, you have decided not to pursue this avenue due to financial elements.

Although you have utilities connected to the country property, have purchased furniture, and have some personal belongings there, this is to allow it to be comfortable for you for the times you stay there. You have not made a transition to totally abandon your life and home in your main residence at the city property with your spouse since acquiring the country property. You stay intermittently between properties depending on your work locations and to spend time with your spouse and your adult child.

As you have not established the country property as your main residence, neither section 118-110 nor section 118-150 of the ITAA 1997 can apply to provide a main residence exemption for the country property. Therefore, when you dispose of the country property as per section 104-10 of the ITAA 1997, a CGT event occurs, and you are unable to apply a main residence exemption for your ownership interest.

Please note as you will have owned the country property for a period greater than twelve months when you dispose of your ownership interest, you will be able to reduce the capital gain you make by applying the individual discount method (section 115-25 of the ITAA 1997). For further conditions, refer to ato.gov.au and search for QC 66019.