Edited version of private advice

Authorisation Number: 1052281116561

Date of advice: 25 July 2024

Ruling

Subject: CGT - main residence exemption

Question 1

Are you eligible for the main residence exemption on disposal of the property pursuant to section 118-150(3) of the Income tax Assessment Act 1997 (ITAA 1997)?

Answer

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 reasons 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.

Question 2

Can you apply the 50% discount to the capital gain on disposal of the property as per section 115-125 of the ITAA 1997?

Answer

Yes.

You are entitled to claim a 50% discount on any capital gain because the acquisition date was more than 12 months prior to the date of disposal.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 XX 20XX

Relevant facts and circumstances

On XX XX 20XX, you and your former spouse paid a deposit on land located at XX (the property).

On XX XX 20XX, the land settlement was completed.

On XX XX 20XX, you and your former spouse sold a home, which you both owned for XX years.

You and your former spouse rented another dwelling to live in as you waited for your dwelling to be built on the property, which was delayed. The intention was to live in it upon completion.

Around XX 20XX, you employed Company A to build a house on the property.

The building of the dwelling on your property was supposed to take twelve months, but it was delayed due to a number of factors.

There were problems engaging an agent to sell the property and problems with landscaping.

There were council delays throughout the building process.

On XX XX 20XX, you separated from your spouse, who you had a dysfunctional relationship with for over XX years, while the house was being built.

You have lived with family and friends since the separation.

You have stated that during the process of obtaining a property settlement, your lawyer was coerced by your former spouse to manipulate and control mediation through Company B.

On XX XX 20XX, a court order settlement was given for the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-150(3)

Income Tax Assessment Act 1997 section 115-5

Reasons for decision

Issue 1

Are you eligible for the main residence exemption on disposal of the property pursuant to section 118-150(3) of the Income tax Assessment Act 1997 (ITAA 1997)?

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 reasons 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.

Detailed reasoning

In some circumstances, the main residence exemption can be applied to land owned by a taxpayer for an additional period of up to four years if the taxpayer builds a dwelling on the land, or repairs, renovates or finishes building a dwelling on the land. Where this is the case, section 118-150 of the ITAA 1997 can apply, such that the new dwelling is deemed to be the individual's main residence from the time that they first acquired an interest in the land.

Under subsection 118-150(3) of the ITAA 1997, a taxpayer can only make the choice if:

•         The dwelling being built, repaired or renovated becomes their main residence as soon as practicable after the work is finished; and

•         It continues to be their main residence for at least three months.

In your case, as you have not used the dwelling on your property as your main residence, you will not be eligible to claim the main residence exemption under section 118-150(3) of the ITAA 1997.

Issue 2

Can you apply the 50% discount to the capital gain on disposal of the property as per section 115-125 of the ITAA 1997?

Summary

Yes.

You are entitled to claim a 50% discount on any capital gain because the acquisition date was more than 12 months prior to the date of disposal.

Detailed reasoning

Section 115-5 of the ITAA 1997 states that a discount capital gain is a capital gain that meets the requirements of sections 115-10, 115-15, 115-20 and 115-25. Section 115-10 of the ITAA 1997 states that:

To be a discount capital gain, the capital gain must be made by:

a) an individual; or

b) a complying superannuation fund; or

c) a trust; or

d) a life insurance company in relation to a discount capital gain.

As you are an individual who has made a capital gain, you have satisfied this requirement. Section 115-15 of the ITAA 1997 requires that the discount capital gain must be made after 21 September 1999. As the CGT event for the vacant block of land was purchased in 20XX, you have satisfied this requirement.

To be a discount capital gain under Section 115-20 of the ITAA 1997 requires that the discount capital gain must be worked out using a cost base that is not referenced to indexation at any time.

Section 115-25 requires that the discount capital gain must be on an asset acquired at least 12 months before. The acquisition date is at least 12 months prior in 20XX and you have satisfied this requirement. Where you satisfy the requirements of sections 115-10, 115-15, 115-20 and 115-25 you can reduce your discount capital gain by 50% (section 115-100 of the ITAA 1997).

In your case, as you have satisfied all of the requirements under section 115-5 of the ITAA 1997, you are entitled to claim a 50% discount on your capital gain.