Edited version of private advice

Authorisation Number: 1052315956804

Date of advice: 10 October 2024

Ruling

Subject: CGT - main residence exemption

Question

Are you entitled to the capital gains tax (CGT) main residence exemption on the sale of your property?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

In 20XX, you entered a contract to purchase a property to be built (the property).

You provided the building developer and the associated car parking company with your vehicle specifications prior to settlement occurring.

On XX/XX/20XX, settlement of the property occurred, and you connected the utilities on the same date.

You commenced moving some of your belongings into the property during the week that settlement occurred.

You own a vehicle which you discovered did not fit your allocated car parking space.

On XX/XX/20XX, you contacted Company A to discuss the car parking space. They confirmed that the vehicle sits between the maximum vehicle height and the physical height to the lower platform. They also confirmed that this was an error on their behalf and recommended that you did not continue to use your allocated car parking space and to contact building management to find an alternative car park.

You are a shift worker and did not wish to park your vehicle on the street.

You stayed at the property on the weekend after settlement occurred and have continued to stay there occasionally.

You do not use the kitchen or shower facility when you stay at the property.

You are renting another property.

You do not own any other property.

You intend to sell the property and find another that is more suitable to your vehicle requirements.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-130

Income Tax Assessment Act 1997 section 118-135

Reasons for decision

You make a capital gain or capital loss if a CGT event happens. CGT event A1 occurs when you dispose of a CGT asset to someone else. Land and dwellings are examples of CGT assets. The time of the event is when you enter into the contract for the disposal (section 104-10 of the ITAA 1997).

Subdivision 118-B of the ITAA 1997 determines the extent to which any capital gain or loss is ignored when a CGT event happens to your dwelling. Section 118-110 of the ITAA 1997 disregards a capital gain or capital loss from a CGT event that happens to a CGT asset that is a dwelling, if you are an individual, the dwelling was your main residence throughout your ownership period, and where the interest did not pass to you from the estate of a deceased person.

You have an ownership interest in land or a dwelling you acquire under a contract from the time you obtain legal ownership of it; or if the contract or a related contract gives you a right to occupy it at an earlier time - the earlier time (subsection 118-130(2) of the ITAA 1997).

A partial exemption is available for a CGT event that happens to a CGT asset that is a dwelling, where the dwelling was your main residence for only part of your total ownership period (section 118-185 of the ITAA 1997).

Section 118-135 of the ITAA 1997 extends the main residence exemption to take account of the time needed to move into a dwelling. It includes the period from when the taxpayer acquired the main residence to when it was first practicable to move into the dwelling after it was acquired.

As such, a dwelling is considered your main residence from the time you acquire your ownership interest in it, provided you move in as soon as practicable after your ownership interest in the dwelling commences. Your ownership interest will generally commence on the date of settlement of the purchase contract.

The phrase 'as soon as practicable' is not defined in the legislation.

The 'Explanatory Memorandum' to the Tax Law Improvement Bill (No. 1) 1998 indicates that section 118-135 of the ITAA 1997 is intended to apply in situations where moving into the dwelling is temporarily delayed due to matters outside the person's control.

The Explanatory Memorandum states that section 118-135 takes into account situations where, for example, there is a delay in moving in because of 'illness or other reasonable cause'. Further, the Explanatory Memorandum specifically states that the exemption does not extend to cases where an individual is unable to move into the dwelling because it is being rented out. However, it would cover a period after the end of the tenancy if the owner could not take up residence immediately because of the nature of repairs required to the dwelling.

Whether the dwelling becomes the taxpayer's sole or principal residence as soon as practicable after erection or completion, depends on the facts of each case. The personal circumstances of the taxpayer may be relevant in limited cases only (Taxation Determination TD 92/147 Income tax: capital gains how soon after the construction of a dwelling is finished must the dwelling become the main residence of a taxpayer to satisfy the conditions in paragraph 118-150(3)(a) of the Income Tax Assessment Act 1997?).

The types of situations envisaged in TD 92/147 are for example, where immediate repairs to the dwelling are needed to be carried out, or your current employer gave you a temporary work assignment in a different location for a very short period of time such as a few months.

However, the factors against concluding that an individual moved into the dwelling as soon as practicable include:

•         the length of time between the date the dwelling was purchased and the date it was first occupied; and

•         what the dwelling is used for during that period (eg earning rental income).

Further, a dwelling can only be considered your main residence if you occupy the dwelling. A mere intention to construct a dwelling or to occupy a dwelling as a main residence, but without actually doing so, is not sufficient to obtain the main residence exemption (Couch and Commissioner of Taxation [2009] AATA 41).

Application to your circumstances

In your case, you purchased a property with the intention of living in it as your main residence. However, after the property had settled, you discovered that your vehicle did not fit the allocated car parking space.

Although you have stated that you stayed at the property occasionally, you have primarily been residing at your rental property. You have only moved some items into the property and do not use the shower or kitchen facilities there.

Based on your circumstances, we do not consider that you moved into the dwelling as soon as practicable as you have not yet moved into the property. Although you have been staying there, you have not really been 'residing' in the property and have not made it your home. Instead, the rental property is still your 'main' residence at the present time.

Whilst we acknowledge that the circumstances surrounding your car parking space were unforeseen, the fact remains that a mere intention to fully move into a dwelling and occupy it as your main residence is not sufficient to satisfy the conditions of the exemption. They go beyond the circumstances envisaged by the Explanatory Memorandum.

As such, you are not entitled to the main residence exemption.