Private ruling: Capital gains tax – main residence exemption
Date of advice: 17 August 2017
Published: December 2017
Ruling period: 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Can you apply the main residence exemption on disposal of property on completion? | A1: No | Q2: Can you apply the 50% discount to the capital gain on disposal of property on completion? | A2: Yes

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 and your spouse purchased a block of land as joint owners in 201X. A building contract was executed by you and your spouse in 201Y and the construction of your dwelling commenced in 201Z. You and your spouse married in 20ZZ and separated in 20ZZ. You purchased no other property with your spouse. The building of your dwelling still remains in progress and is due to be completed by late 20ZZ.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subdivision 115-A | Income Tax Assessment Act 1997 section 118-115 | Income Tax Assessment Act 1997 section 118-135 | Income Tax Assessment Act 1997 section 118-150

Reasons for decision: Detailed Reasoning - Main residence exemption – building a new home: Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence (section 118-110 of the ITAA 1997). In order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it (section 118-110 and 118-185 of the ITAA 1997), must not have been used to produce assessable income (section 118-190 of the ITAA 1997) and any land on which the dwelling is situated should not be more than two hectares. Furthermore, for this exemption to apply it must be established that a property is your main residence or home. Whether a dwelling is an individual's principle residence depends on the facts of each case. The factors will be relevant when working out whether your dwelling is your main residence: ● The length of time you have lived there ● Your personal belongings in the house ● Where your mail gets delivered ● Connection of services ● Your electoral role address and ● Your intention to occupy 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. (Quick code 51236 - Guide to capital gains tax 2017). Treating land as your main residence while you build If you are building a home on vacant land, you can choose to treat your land as your main residence for up to four years before you move into the home, only under certain circumstances. You must first finish building, repairing or renovating the dwelling and: ● have an ownership interest in the land ● move into the dwelling as soon as practicable after it is finished, and ● continue to use the dwelling as your main residence for at least three months after it becomes your main residence. If you choose to treat your land as your main residence while you build, you cannot treat any other dwelling as your main residence for the same period, except for a limited time under the moving from one main residence to another rule. If you choose to move into your dwelling upon completion, this will only entitle 'that person’ who resides in the dwelling to the main residence exemption. The land and building are treated as one asset and cannot be separated for CGT purposes, as they are post 20 September 1985. There are different circumstances when the land and building can be separated if an asset is pre-CGT, 20 September 1985. If you choose to rent out the newly built property after it is completed, or do not move into it as soon as possible, you cannot claim a main residence exemption for the vacant land or for any period that your property is rented out. In your case, you purchased a block of land in 201X and construction of the dwelling commenced in September 201Z and is expected to be completed by late 20ZZ. The four year maximum time limit to occupy this dwelling and continue to treat as your main residence ends in late 20XY. As the construction of the dwelling is still underway, you did for all intent purposes have every intention to move into this dwelling, but a mere intention is not sufficient to obtain the exemption. If the dwelling is disposed of after completion, you cannot disregard the capital gains tax or the capital loss. However, if you choose to move into the dwelling upon completion and continue to treat this dwelling as your main residence for at least three months, this may entitle you to the main residence exemption. Therefore, if your circumstances do change to this effect, you can re-apply for a further private ruling. | Detailed Reasoning - Discount capital gain: Section 115-5 of the ITAA 1997 states that a discount capital gain is a capital gain that meets the requirements of sections 115-10, 115-15, 115-20 and 115-25. Section 115-10 of the ITAA 1997 states that: To be a discount capital gain, the capital gain must be made by: a) an individual; or b) a complying superannuation fund; or c) a trust; or d) a life insurance company in relation to a discount capital gain As you are an individual who has made a capital gain, you have satisfied this requirement. Section 115-15 of the ITAA 1997 requires that the discount capital gain must be made after 21 September 1999. As the CGT event for the vacant block of land was purchased in 201X, you have satisfied this requirement. To be a discount capital gain under Section 115-20 of the ITAA 1997 requires that the discount capital gain must be worked out using a cost base that is not referenced to indexation at any time. Section 115-25 requires that the discount capital gain must be on an asset acquired at least 12 months before. The acquisition date is at least 12 months prior in 201X and you have satisfied this requirement. Where you satisfy the requirements of sections 115-10, 115-15, 115-20 and 115-25 you can reduce your discount capital gain by 50% (section 115-100 of the ITAA 1997). In your case, as you have satisfied all of the requirements under section 115-5 of the ITAA 1997, you are entitled to claim a 50% discount on your capital gain.