Private ruling: CGT Main Residence Exemption
Date of advice: 7 March 2017
Published: August 2017
Ruling period: Years ended 30 June 2017 and 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Can you apply the Main Residence Exemption to Property B? | A1: No.

Relevant facts and circumstances: You and your spouse purchased Property A in early 201X. This property was your main residence and you continued to live here until the property was sold. You purchased Property B in mid 201Y. The Property B was intended to be your new main residence; you had some furniture and personal belongings moved to the house in anticipation that it would be your primary residence. Property B was also listed as your new mailing address. The gas, hot water and electricity were connected from mid-late 201Y. You would have moved into Property B after settlement; however you decided to renovate the property first and you were unable to live there while the renovations took place. Renovations began on Property B in mid-late 201Y, and were expected to be completed by late 201Y. However the renovations were not completed until the end of early-mid 201Z. Additionally you had to have some asbestos removed from the property and were aware of previous use of lead paint. In anticipation of moving into Property B you sold Property A, you signed a contract in early -mid 201Z with settlement in mid 201Z. You and your spouse moved into a rental property once Property A was sold. The Property B renovations were completed in mid 201Z. You have previously been diagnosed with a medical condition; this condition prevented you from moving in to the Property B once the renovations were completed. Due to this condition you would like to purchase another property that does not require renovations. Property B was available for rent from mid 201Z. You will sell Property B. It was your intention for the property to be your main residence even though you never lived in the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-135 | Income Tax Assessment Act 1997 section 118-150

Reasons for decision: Detailed Reasoning - Capital Gains Tax- Main Residence Exemption:: The Capital Gains Tax (CGT) Exemptions are set out in Division 118 of the Income Tax Assessment Act 1997 (ITAA 1997). In particular, Subdivision 118-B of the ITAA 1997 contains the main residence exemption. This exemption disregards a capital gain or capital loss you make from a CGT event that happens to a dwelling, or your ownership interest in a dwelling which is your main residence. A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if: ● You are an individual ● The dwelling was your main residence throughout your ownership period ● The property was not used to produce assessable income, and ● Any land on which the dwelling is situated is not more than two hectares There are several extensions and limitations to the main residence exemption. These can affect your entitlement to the main residence exemption, depending upon your individual circumstances. | Detailed Reasoning - Determining if a dwelling is a main residence:: If a dwelling becomes your main residence by the time it was first practicable for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence (section 118-135 of the ITAA 1997). Some relevant factors in determining whether you have established a dwelling as your main residence may include, but are not limited to: ● the length of time you have lived in the dwelling ● the place of residence of your family ● whether you have moved your personal belongings into the dwelling ● the address to which you have your mail delivered ● your address on the Electoral Roll ● the connection of services such as telephone, gas and electricity, and ● your intention in occupying the dwelling. A dwelling can only be considered your main residence if you actually occupied the dwelling. A mere intention to construct or occupy a dwelling as your main residence, without actually doing so, is not sufficient to obtain the exemption. Due to making the choice to have renovations completed on Property B, you were unable to move in directly after the ownership interest was acquired. Section 118-150 of the ITAA 1997 applies to land in which you build a dwelling on the land, or repair, renovate or finish building a dwelling on the land. You can choose to treat it as your main residence from the time you acquired the ownership interest. You can make this choice only if: (a) A dwelling on the land that you construct, repair of renovate becomes your main residence (except because of section 118-147) as soon as practicable after the work is finished: and (b) It continues to be your main residence for at least 3 months. There were substantial renovations completed on Property B and you were unable to move into the house as intended. You remained in alternate accommodation while the property was being renovated. Even after the renovations were completed, you and your family did not physically occupy the dwelling. Although your intention was to occupy Property B as your main residence, you have not done so at any time to date. Consequently, you and your spouse are not entitled to the main residence exemption and any capital gain or loss you make on the sale Property B cannot be disregarded.