Private ruling: CGT - main residence
Date of advice: 23 May 2023
Published: 10 July 2023
Date scheme commenced: XX/XX/20XX

Ruling: Q1: Are you entitled to the full main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of the Property? | A1: No. This private ruling applies for the following period: Year ending in XX/XX/20XX The scheme commenced on: XX/XX/20XX

Relevant facts and circumstances: In XX/20XX, the Applicant was advised by the Employer that they were required to relocate from Location A to Location B as part of their employment. In XX/20XX, the Applicant was advised by their Employer that they are required to relocate from Location B to Location A as part of their employment. On XX/XX/20XX, the Applicant entered a contract for purchase of the Property. On XX/XX/20XX, the Applicant was advised by their Employer that due to a company re-structure, they were required to relocate from Location B to Location C rather than Location B to Location A. On XX/XX/20XX, settlement of the Property occurred. The Applicant commenced the process of arranging for the Property to be tenanted. On XX/XX/20XX, the Property was leased to a tenant. In XX/20XX, the Employer directed the Applicant relocate from Location C to Location A so that they could undertake their role more effectively. The Applicant was unable to move into the Property as the tenants were refusing to break their lease and therefore commenced commuting from Location C to Location A for work. On XX/XX/20XX, the tenants vacated the Property. On XX/XX/20XX, the Applicant commenced occupation of the Property. On XX/XX/20XX, the Applicant disposed of the Property.

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

Reasons for decision: Summary: It is considered that you did not move into the Property 'when it was first practicable to do so' within the meaning of section 118-135 of the ITAA 1997 and the circumstances of temporary delays envisaged by the Explanatory Memorandum to the Tax Law Improvement Bill (No. 1) 1998 (the Explanatory Memorandum). | Detailed Reasoning - Detailed reasoning: The phrase 'as soon as practicable' is not defined in the legislation. The Explanatory Memorandum indicates that section 118-135 of the ITAA 1997 is intended to apply in situations where moving into the dwelling is temporarily delayed due to matters outside the persons control. This then considers situations where, for example, there is a temporary delay in moving in because of illness or other reasonable cause. It is not extended to the situation where the individual is unable to move into the dwelling because it is being rented out to tenants. Whether the dwelling becomes the taxpayer's sole or principal residence as soon as practicable after erection or completion, depends on the facts of each case. The personal circumstances of the taxpayer may be relevant in limited cases only (Taxation Determination TD 92/147 Income tax: capital gains ). The types of situations envisaged in TD 92/147 are for example, where immediate repairs to the dwelling are needed to be carried out, or your current employer gave you a temporary work assignment in a different location for a very short period of time such as a few months. However, the factors against concluding that an individual moved into the dwelling as soon as practicable include: • the length of time between the date the dwelling was purchased and the date you first occupied it; and • what the dwelling is used for during that period (earning rental income). The extension of the main residence exemption will not apply in the situation where a taxpayer purchases a property with the intention of occupying it as their main residence but never actually occupies the property ( Couch and Commissioner of Taxation [2009] AATA 41) (Couch's case). In Couch's case, the taxpayers acquired a property in 2000 with the intention of residing in it as their matrimonial home. However, due to employment circumstances, the property was rented out until it was sold in 2006, without the taxpayers having resided in it. The Administrative Appeals Tribunal (AAT) held that the fact that the property was continually being leased and was not being occupied by the taxpayers because of employment circumstances was not enough to invoke section 118-135 of the ITAA 1997. In Chapman and Commissioner of Taxation [2008] AATA 421 (Chapman's case), the taxpayer purchased a property in June 2001 but, because they worked in another city and for financial reasons, the property was rented out until they took up residence in September 2003. The AAT said that it was clear that the taxpayer did not move into the residence by the time it was first practicable to do so after the property was acquired. Further, the tribunal stated that the phrase "time it was first practicable" should not be read to mean "the time it was first convenient". A similar decision was held in Caller and Commissioner of Taxation [2009] AATA 890 (Caller's case), where the husband and wife taxpayers purchased a property in 2001 but, as the husband had been transferred 600 kms away for work, they leased it to a tenant until April 2004 when they took occupation of it. They subsequently sold it in 2006 but their claim for the exemption on the basis that they had moved into the property as soon as it was " first practicable" was denied. The AAT found that it was clear that a period when the property was let out and during which rental income was being derived could not qualify for the main residence exemption. It was affirmed that the Couch and Chapman cases were correctly decided. | Detailed Reasoning - Application to your circumstances: In your case, you purchased the Property with the intention of it being your main residence however the dwelling was rented to tenants for the entire time that you did not live in the Property, being between XX/20XX and XX/20XX. Whilst we acknowledge the circumstances surrounding your employment commitments, the fact remains that a mere intention to move into a dwelling and occupy it as your main residence is not enough to qualify the conditions of the exemption in section 118-135 of the ITAA 1997 and treat the dwelling as your main residence from when you acquired it in 2010. The reasons for your extended delay in moving into the Property go beyond the temporary circumstances envisaged by the Explanatory Memorandum.