Private ruling: Capital gains tax - main residence exemption
Published: April 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2011

Ruling: Questions and answers | 1. Are you able to have a full main residence exemption on your current property? | Yes. | 2. Are you able to have a full main residence exemption on a new property? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You currently live in a property with your partner which you both treat as your main residence. You have a block of land which you purchased a number of years ago. You intend to build on this block of land a new main residence. You will put the current main residence on the market and intend to sell it within 6 months of moving into the new main residence. You wish to treat your current main residence for the hole of your ownership period.

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 108-5.

Reasons for decision: Summary: A taxpayer will make a capital gain or capital loss if a capital gains tax event (CGT event) happens to a capital gains tax asset (CGT asset) that they own. A CGT event occurs when there is a change in legal ownership of a CGT asset under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997). The most common CGT event is CGT event A1, the disposal of an asset. This will happen when you dispose of the dwelling you are currently living in. Generally, you can ignore a capital gain or loss you make on the disposal of a dwelling that was your main residence if: · the dwelling was your home for the whole period you owned it; · the property was not used to produce assessable income; and · any land on which the dwelling is situated is not more than two hectares. | Detailed Reasoning - Building a main residence: If you build a dwelling on vacant land sub section 118-150(3) ITAA 1997 states that you can treat the dwelling as your main residence provided that it continues to be your main residence for a period of at least 3 months. If a taxpayer has a dwelling they acquired on or after 20 September 1985 and they live in it while they build their new home, they must decide whether to: · Maintain the exemption for their old home, or · Have the exemption apply to the land (including the dwelling which is being built) for the shorter of: o The time from when they acquired the land until the new home becomes their main residence, or o The four year period immediately before the date on which the new home becomes their main residence. During this period no other property can be treated as your main residence (except for the 6 month exemption where you are changing main residences). | Detailed Reasoning - Changing main residences: Under section 118-140 of the ITAA 1997, if a taxpayer acquires a new home before they dispose of their old one, both dwellings are treated as their main residence for up to six months if: · The old dwelling was their main residence for a continuous period of at least three months in the 12 months before they disposed of it · They did not use it to produce assessable income in any part of that 12 months when it was not their main residence, and · The new dwelling becomes their main residence. This exemption allows the taxpayer to treat their new dwelling as their main residence for a period of six months prior to disposing of their old dwelling. If it takes longer than six months to dispose of your old home, you may get an exemption for the old home for the period in excess of the six months by choosing to treat it as your main residence for that period under the 'continuing main residence status after dwelling ceases to be your main residence' rule. If you do this, you get only a partial exemption when you dispose of your new home. In your case you wish to treat your existing main residence as your main residence for the whole of your ownership period. You will build a new main residence on the land you have owned for a number of years. As soon as the new house is built you will move into the new house and treat it as your main residence from the time you move in. You hope to have sold your existing main residence within the 6 month period of being able to have two main residences. You intend to sell the new main residence at some stage in the future. As you have chosen your current residence to be your main residence for the whole of your ownership period and you cannot have two main residences at anyone time accept for the 6 month period you will only be entitled to a partial main residence for your new property. If you are able to sell your current property within the 6 months where you have two main residences then CGT will not apply. If it takes longer than the 6 months to sell the property then the below formula is required to be used to calculate a gain or loss. Where you are entitled to a partial main residence exemption, the following formula is used to calculate any capital gain or capital loss: Capital gain or capital loss multiplied by non main residence days divided by total days in your ownership period.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.