Private ruling: Capital gains tax – main residence
Date of advice: 31 October 2018
Published: January 2019
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the sale of your property be exempt from capital gains tax under section 118-110 of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: You purchased a property (the purchased property) in 20XX with the intention of moving in with your family and it being your principal place of residence. You did not move into the purchased property. At the time of purchase you did not own any other residential property. Your dependant was diagnosed with a medical condition in 20XX. You have been renting a property (the rental property) since 20XX. You lived in the rental property due to its proximity to the school where your dependant attended. You also receive home doctor visits to the rental property and attend a clinic which is closer to the rental property. The owner of the rental property allowed you to complete various renovations and modifications that would suit your dependant. Your dependant’s condition has been gradually deteriorating since 20XX. Your dependant did not want to move into the purchased property as they were comfortable in the rental property with the renovations and modifications that had been completed. You could not do renovations and modifications at the purchased property due to financial constraints. You rented the purchased property. You quit your job in 20XX as your spouse was struggling with the physical aspects of looking after your dependant. You intend to sell the purchased property and purchase a better suited house by moving to outer suburbs.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Subsection 118-110(1) | Income Tax Assessment Act 1997 Paragraph 118-110(1)(b)

Reasons for decision: Summary: Under subsection 118-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997) you can disregard a capital gain or capital loss from a capital gains tax (CGT) event that happens to a CGT asset that is a dwelling or your interest in it if: (a) you are an individual; and (b) the dwelling was your main residence throughout your ownership period; and (c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. The Guide to capital gains tax 2018 says “A mere intention to occupy a dwelling as your main residence, without actually doing so, is not sufficient to get the exemption.” In your case you purchased a property with the intention of making it your main residence. You did not move into the property. Your dependant, who has a medical condition, did not want to move into the purchased property as they were comfortable in the rental property due to the renovations and modifications that had been completed. You could not do renovations and modifications to the purchased property due to financial constraints. The rental property is also closer in proximity to where your dependant needs to attend medical appointments. You rented the purchased property. You will not met the main residence requirement at paragraph 118-110(1)(b) of the ITAA 1997 as the purchased property was not your main residence during the ownership period. An intention for it to be your main residence is insufficient to obtain the exemption. While we appreciate you intended to move into the property and for it to be your main residence, the circumstances are that you did not move into the property and you rented the property to tenants. The Commissioner has no discretion to disregard the capital gain or capital loss you will make upon its disposal. Therefore when you sell the purchased property the capital gain or capital loss from the CGT event will not be exempt from CGT. The net capital gain or capital loss will need to be included in your assessable income and it will be taxed at the marginal rate applicable to the income for that year. | Detailed Reasoning - Further information: You did not specify the year in which you intend to sell property. The Commissioner does not rule for indefinite or extended periods as there may be changes to the facts of the arrangement or the law in question. Therefore, we will only rule for the period 1 July 2018 to 30 June 2022.