Edited version of private advice

Authorisation Number: 1052324150187

Date of advice: 28 October 2024

Ruling

Subject: Capital gains tax

Question

Are you entitled to the main residence exemption on the sale of the property?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

You purchased the property several years ago.

You moved into the property in the month after it was purchased.

You moved a number of items into the property.

You used a removalist to transport your furniture and belongings into the property and you do not have a receipt for this as you paid in cash.

You had the utilities connected during the week you moved into the property.

You did not change your address on the Electoral Roll.

You did not have owner occupier house and contents insurance on the property.

You had some of your mail directed to the property.

An agreement to rent the property out with a real estate agent was signed in the month after you moved into the property.

You moved out of the property in the same month that the agreement to rent the property out was signed.

You moved your belongings yourself.

You left some of your belongings for the tenant to use and you stored the remaining items in the garage at a relatives house.

You moved in with your relatives due to having a young baby and your mental health.

You also needed assistance with the care of your child.

You are still living with your relatives.

Prior to purchasing the property, you were renting a property and had lived there for a couple of years.

You also have a number of investment properties.

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 doing so, is insufficient to obtain the exemption.'

A taxpayer can use Section 118-145 of the ITAA 1997 to treat a property as their main residence for up to 6 years where the property is rented out as long as the property was their main residence prior to the property being rented and they treat no other property as their main residence for the same period.

The Commissioner is of the opinion that the period of time was not a sufficient amount of time for you to of established the property as your main residence.

Settlement on the property was several years ago.

You moved in during the month after settlement and moved out a few weeks after you moved in.

This length of time did not enable you to engage in the day to day life usually experienced when a property is someone's home.

You moved out of the property and in with your relatives due to having a young child and needing assistance with the care of the child along with your mental health.

Covid was also a factor as to why you moved out of the property.

You were not in the property for sufficient time to be able to use the main residence CGT exemption on the property and you are not able to use the absence rule under section 118-145 of the ITAA 1997 to treat the property as your main residence for the period you have been living with your relatives.

The Commissioner does not have the discretion to be able to take Covid into consideration and your mental health at the time you moved into the property and allow the main residence exemption.

The Commissioner can only apply the law as it stands.

There is no legislative discretion to enable the Commissioner to take personal circumstances into Consideration.

Therefore, the main residence exemption is not available to you when you sell the property.