Edited version of private advice

Authorisation Number: 1052288918212

Date of advice: 8 August 2024

Ruling

Subject: CGT - main residence

Question 1

Will the property become your main residence when you move in?

Answer

Yes. The property will commence being your main residence when you move into it and commence living in it as your main residence.

Question 2

Will the property be your main residence from the date the property settles?

Answer

Yes. The property will commence being your main residence when you move into the property and establish it as your main residence.

Question 3

Are you able to treat the property as your main residence for CGT purposes for up to 6 years if you move out after the birth of your child?

Answer

Yes. You are able to treat the property as your main residence for up to 6 years as your main residence if you need to move out of the property to obtain assistance with caring for your children from your parents-in-law after the birth of your child as long as you treat no other property as your main residence for the same period of time.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are the sole owner of a unit.

You have lived in the unit since you purchased it.

You commenced renting the unit out recently.

You are currently treating the unit as your main residence for CGT purposes under the absence rule in Section 118-145 of the Income Tax Assessment Act 1997.

You and your family currently live with your parents-in-law to assist with the care of your child.

Recently, you and your spouse exchanged contracts and paid the deposit to purchase the property as joint tenants.

The property contains a dwelling.

You and your spouse have purchased the property with the intention of it being your forever family home over the long term.

Settlement is scheduled to occur in a number.

You and your family will move into the property around the time of settlement.

You and your family will move all personal and household items into the property.

You will have all utilities connected to the property.

You will have your mail directed to the property.

You will change your name on the Australian Electoral Commission roll.

The property will not produce assessable income while you are living in it.

You will cease treating the unit as your main residence under the absence rule when you commence living in the property as your main residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Reasons for decision

You make a capital gain or loss because of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss.

You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it.

You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it.

Capital gains tax is not a separate tax, it forms part of your assessable income and is taxed at your marginal tax rate.

CGT main residence

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income.

Whether a dwelling is your main residence depends on the actions of you and your family. 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.

In this sense, your intentions can help to explain your actions or affect the weighting given to certain actions over others. However, your intentions are not a substitute for your actions.

In Couch & Anor v Federal Commissioner of Taxation [2009] AATA 41 at paragraph 14, the Tribunal confirmed that the 'mere intention to occupy a dwelling as a sole or principal residence, but without actually doing so, is insufficient to obtain the exemption.'

You and your family intend on moving into the property and commence treating it as your main residence. You will have all utilities connected, move all personal and household items into the property, have all mail directed to the property, change your address to that of the property on the Electoral Roll and live in the property as your main residence.

If you are required to move out of the property after the birth of your child and move in with your parents-in-law, you will be able to use the absence rule to treat the property as your main residence for up to 6 years as long as you treat no other dwelling as your main residence for the same period.