Private ruling: Intended main residence
Published: November 2011
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: Will the capital gain that you made on property 2 be disregarded? No.

Relevant facts and circumstances: Some time after 20 September 1985 you purchased a property (herein referred to as property 2) with the intention of redeveloping the property to erect a new dwelling on the site as your main residence. At the time of purchase you owned another property (herein referred to as property 1) which you occupied as your main residence. You intended to sell property 1 once property 2 was redeveloped. Property 2 was rented out after settlement whilst plans were drawn up to submit to council for redevelopment. When development costs were assessed they exceeded what was expected. It was determined that it was not feasible to continue with the development of property 2 and building of the planned new place of main residence. Property 2 was sold during the 2009-10 income year. You continue to occupy property 1.

Relevant legislative provisions: Income Tax Assessment Act 1997 102-20, | Income Tax Assessment Act 1997 104-10 and | Income Tax Assessment Act 1997 118-110.

Reasons for decision: Detailed Reasoning - Capital gains tax (CGT): You make a capital gain or capital loss only if a CGT event happens to a CGT asset. The most common CGT event is CGT event A1, which happens when you dispose of an asset to someone else. The time of the event is when you enter into a contract for the sale, or if there is no contract, when the change of ownership occurs. In some circumstances, an exemption may apply which allows, either in part or in full, any capital gain or loss to be disregarded. One of these exemptions is known as the main residence exemption. | Detailed Reasoning - Main residence exemption: You disregard a capital gain or loss from a CGT event that happens to your ownership interest in a property acquired on or after 20 September 1985 if: § the dwelling on the property was your main residence for the whole of your ownership period; § the property was not used to produce assessable income, and § the land on which the dwelling is situated is two hectares or less. However, in order for the main residence exemption to apply, you must have physically moved into the dwelling. The mere intention to occupy a dwelling as a main residence, without actually doing so, is not sufficient to obtain the main residence exemption. | Detailed Reasoning - Application to your circumstances: Although your intention was to occupy the property 2 after redevelopment as your main residence, you did not do so. Therefore, you are not entitled to the main residence exemption and any capital gain or loss you made on the sale of property 2 cannot be disregarded. While we appreciate the circumstances of your situation the Commissioner does not have the discretion to allow you to disregard any capital gain or capital loss that you have made.

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