Private ruling: CGT - main residence exemption
Date of advice: 11 July 2023
Published: 4 September 2023
Ruling period: Year ended 30 June 2022
Date scheme commenced: 1 July 2021

Ruling: Q1: Are you entitled to a partial main residence exemption on the property? | A1: No.

Relevant facts and circumstances: You purchased a property several years ago. The property is less than two hectares in size. When you purchased the property, it was your intention to move into the property and treat it as your main residence. Prior to the property settling you took sick. It took several months to get a diagnosis. You were in financial difficulty. You were not able to move into the property. After the purchase, the property was rented out for several months. You moved in with your parent as you needed care. You moved out of your parent's place, and you decided to move into a rental property. During the move into the property you injured your back. For a few years the property was leased to the same family. You received an e-mail from the agent looking after the property saying that the tenants were vacating and that the property would be vacant. The property was advertised for lease straight away and potential tenants could not view the property until the tenants had vacated. You received an inspection report which highlighted repairs and cleaning that needed to be done on the property. The tenants returned the keys on the date they vacated the property. You and your family decided you would move into the property. You gave notice to your agent that you would be vacating the property you were renting and breaking your lease. You viewed your property and found that there was damage and cleaning to be done. You moved into your property using a removalist to move your property in on the same day. The repair and major renovation and other work was able to be done while you were living in the property. The utilities were not connected in your name at the property from when you moved in until you moved out a few days later. You contacted your energy provider to advise your vacate date and move in date. They could not find the meter in your unit complex. You were told that you were not actually being charged electricity since you moved in. The Lot number and Meter number on their system did not matter, therefore they were unable to locate it. This went back and forth for months. Whilst your intention was to change over properties, you couldn't disconnect your agreement with your energy provider until they located the appropriate metre. You ended up living in your property for several days and your metre hadn't been located yet, an actual transfer of gas and electricity did not take place. The property was removed from the real estate listing when you moved in. A few days later you came to the realisation that you were not able to continue living at the property due to the configuration of the property and the stairs required to access the property. You contacted the agent to ask if the property you were previously renting was still available and if your lease could be reinstated and the agent was able to do this. You were not charged the break lease penalty and the rental payments continued under the previous agreement. You then contacted the removalist and booked them in to move your belongings out and back to the previous property. Your property was rented to tenants a few weeks later. Several months later you were contacted by the tenants in your property who were finding it hard financially to stay in the property. It was at this point that you decided to sell the property. The property was advertised for sale. The property was sold shortly after and settled in the following month. You purchased another home in the same month and moved into it and are using it as your main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-185

Reasons for decision: Summary: You make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss. You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it. Capital gains tax is not a separate tax, it forms part of your assessable income and is taxed at your marginal tax rate. | Detailed Reasoning - CGT main residence: Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income. As the property was not your main residence for the whole of your ownership period you cannot have a full main residence exemption on the property. You did not move into the property when you purchased it and you rented it for several years. The property remained vacant from when the tenants handed in their keys when you and your family moved into the property. You and your family were in the property for several days when you moved back to the previous rental property. The question remains as to whether you established the property as your main residence for the period you were staying there. Whether a dwelling is your main residence depends on the actions of you and your family. Generally, a dwelling is considered to be your main residence if: • You and your family live in it • Your personal belongings are in it • It is the address your mail is delivered to • It is your address on the electoral roll • Services such as gas and power are connected. The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant. In this sense, your intentions can help to explain your actions or affect the weighting given to certain actions over others. However, your intentions are not a substitute for your actions. In Couch & Anor v Federal Commissioner of Taxation [2009] AATA 41 at paragraph 14, the Tribunal confirmed that the 'mere intention to occupy a dwelling as a sole or principal residence, but without actually doing so, is insufficient to obtain the exemption.' Where a full exemption is not available, you may be entitled to a partial exemption under section 118-185 of the ITAA 1997. You calculate your capital gain or capital loss as follows: Non-main residence days Capital gain or capital loss amount x Total days Non-main residence days / total number of days you are entitled to a partial main residence exemption It is accepted that you intended for the property to be your main residence after you purchased it. It is also accepted that various illnesses prevented you from moving into the property and that your medical conditions prevented you from remaining in the property. The Commissioner is of the opinion that the period of several days was not a sufficient amount of time for you to of established the property as your main residence. This length of time did not enable you to engage in the day to day life usually experienced when a property is someone's home. Although the utilities were connected, they were not in your name. The period was more of a trial to see if you were able to handle the layout of the property with your medical conditions. In the circumstances of your case, the previous property continued to be your main residence during this period because: • You and your family lived in the previous property before this period • You and your family moved back to the previous property immediately after this period • The previous property was not rented to anyone else while you were absent from it • You have effectively continued to lease the previous property while you were absent from it • You have a stronger connection to the previous property You are therefore not entitled to a partial main residence exemption on the property.