Edited version of private advice

Authorisation Number: 1052292473528

Date of advice: 28 August 2024

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 period:

Year ended DD/MM/20YY

The scheme commenced on:

DD/MM/20YY

Relevant facts and circumstances

In 20XX, you moved from overseas with the intention to purchase a block of land to build your first home and settle in a regional area.

You rented a property at XXX.

You received a notice declaring all secondary state schools in XXX were to be amalgamated into a single super school. You were opposed to sending your children to a super school so therefore applied to enrol the children in various other schools and colleges.

On DD/MM/20YY, you paid a deposit for a block of land.

On DD/MM/20YY, settlement occurred for the block of land.

On DD/MM/20YY, you commenced building a house on this block of land.

Between MM and MM/20YY, you received notice of unsuccessful enrolments for your eldest child from several schools and colleges.

You made the decision to move away from the area for your children's future schooling.

On DD/MM/20YY, the construction of the house was completed.

Between MM/20YY and MM/20YY, lighting, landscaping and fence installation was completed on the property.

In MM/20YY, you moved out of your rental property, purchased a caravan and moved to XXX.

On DD/MM/20YY, a contract of sale for the property was signed.

On DD/MM/20YY, settlement occurred.

You never moved into the newly built dwelling.

You then purchased another property elsewhere to reside in as your main residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 100-20

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 118-150

Reasons for decision

Question

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

Summary

A mere intention to construct or occupy a dwelling as your main residence without doing so is not sufficient to apply the main residence exemption to the sale of the property, in accordance with the capital gains tax provisions.

However, you will be entitled to claim a 50% discount on any capital gain because the purchase date of the property will be more than 12 months prior to the date of disposal.

Detailed reasoning

Capital Gain Tax - provisions.

Section 100-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gains tax (CGT) event occurs when any disposal, sale or transfer of a CGT asset occurs. Generally, when you dispose of a CGT asset, a CGT event will result in a capital gain or capital loss which is included in your assessable income. However, there are a number of provisions in Parts 3-1 and 3-3 of the ITAA 1997which provide exceptions, exemptions, and roll-overs that provide relief from CGT in some specific situations.

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 circumstances, you purchased a block of land in MM/20YY and constructed a dwelling that was completed in MM/20YY. We accept that initially you intended to move into the dwelling upon completion but due to personal circumstances, the Property was 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.