Edited version of private advice

Authorisation Number: 1052326171744

Date of advice: 4 November 2024

Ruling

Subject: CGT - main residence exemption

Question

Are you eligible for the main residence exemption upon disposal of the 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

The block of land is located at XXXX (the land).

The land is less than two hectares in size.

You purchased the land after 20 September 1985 with the intention of building a home to move into upon completion of construction. Settlement on the property concluded in MM 20YY.

It has taken you some time prepare the land for construction to proceed.

Since you purchased the property, you have been in conflict with another individual within the neighbourhood.

Construction commenced MM YY 20YY. When the builders have attempted to access the property (asking the neighbour to move their vehicles) the neighbour has also became verbally abusive towards them. The builders have left the site on multiple occasions for safety concerns relating to the neighbours' actions.

As you do not feel safe living in the property you are having constructed on the land, your intention is to sell the land and contract of property as soon as possible. You do not intend to wait for the property to be constructed, and do not intend to move into the property while awaiting the sale to be completed.

At the time of the issuing of this ruling, the construction is still in progress.

Relevant legislative provisions

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 upon disposal of the property?

Summary

No.

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.

Detailed reasoning

Main residence exemption - building a new home

Section 118-110 of the Income tax Assessment Act 1997 (ITAA 1997) provides 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.

Section 118-150 (1) of the ITAA 1997, applies to land in which you have an ownership interest in and you build a dwelling or finish building a dwelling on the land.

Section 118-150 (3) of the ITAA 1997 allows you to make a choice if the dwelling on the land that you construct becomes your main residence as soon as practicable after the work is finished and continues to be your main residence for at least 3 months.

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.

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.

Application to your circumstances

We accept that initially you intended to move into the dwelling upon completion but due to circumstances outside of your control, you now intend to sell land and dwelling before construction is completed.

As you will not moving into the dwelling after construction and establishing the dwelling as your main residence for at least 3 months, you will not be eligible to make the choice under section 118-150 (3) of the ITAA 1997.

As you will not meet the requirements to make this choice, you will not be entitled to the main residence exemption on the sale of the property. Therefore, you cannot disregard the capital gain or capital loss on the sale under 118-110 of the ITAA 1997.

Please note that if the sale of the land takes place more than 12 months from the date you acquired it (based on the settlement date), you will be entitled to claim a 50% discount on any capital gain.