Private ruling: CGT main residence exemption
Date of advice: 16 April 2019
Published: May 2019
Ruling period: Year ending 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: Are you entitled to apply the capital gains tax (CGT) main residence exemption under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) to the sale of the third dwelling? | A1: No.

Relevant facts and circumstances: You purchased the property with the original dwelling in 19XX. The property was comprised of a number of blocks. You demolished the original dwelling in 20XX. You built a second dwelling immediately after demolishing the original building. You moved into the second dwelling and stayed there until it was sold in 20XX with settlement taking place in 20XX. You began building a third dwelling which you initially intended to become your main residence. You have received an offer for the third dwelling which is currently under construction and will not be moving into it.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-150

Reasons for decision: Detailed Reasoning - Main residence exemption: Section 118-110 of the ITAA 1997 allows you to disregard a capital gain or loss which you make in relation to a CGT asset where you are an individual, the dwelling was your main residence for the full period of ownership and you did not acquire your interest in it as either the trustee or beneficiary of a deceased estate. If a taxpayer owns more than one dwelling during a particular period, only one dwelling can be their main residence at any one time. In your case, the earlier intention to occupy the dwelling as your main residence without actually doing so is insufficient in obtaining the exemption. You have not made the dwelling your main residence and therefore will not be able to claim the main residence exemption. | Detailed Reasoning - Constructing a dwelling on land you already own: If you build a dwelling on land you already own, the land usually does not qualify for the main residence exemption until the dwelling becomes your main residence. Section 118-150 of the ITAA 1997 deals with building, repairing or renovating a dwelling on land in which a taxpayer has an ownership interest. This section enables you to choose extend the main residence exemption for the dwelling to include the shorter period of: ● four years before the dwelling becomes your main residence, or ● the period starting from when you acquired your ownership interest in the land and ending when the dwelling becomes your main residence. However, you can make this choice only if the dwelling: ● becomes your residence as soon as practicable after the dwelling is built, repaired or renovated; and ● continues to be your residence for at least three months. As you did not meet the conditions under section 118-110 of the ITAA 1997 requiring that the dwelling be your main residence, the requirements of section 118-150 of the ITAA 1997 cannot be met and therefore will not apply. | Detailed Reasoning - Conclusion: In your circumstances you will not be able to claim the main residence exemption as the dwelling will not be yo ur main residence for any period. This precludes the exemption applying to the land as the qualifying factor is the dwelling must first become your main residence.