Private ruling: Main residence CGT exemption
Date of advice: 10 December 2018
Published: April 2019
Ruling period: Year ending 30 June 20XY
Date scheme commenced: 1 July 20ZZ

Ruling: Q1: Are you entitled to the main residence CGT exemption? | A1: No

Relevant facts and circumstances: You purchased a residential home (the dwelling) in July 20XX. You rented the dwelling out from 20XX to 20YY. The dwelling was vacant from 20YY. The property is less than 2 hectares. The dwelling was never your main residence as you never moved in. The dwelling burnt down on xx 20YY. You decided not to rebuild on the land. You signed a contract of sale for the vacant land in 20ZZ. The property settlement date is 20XY.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-110(1) | Income Tax Assessment Act 1997 Section 118-115 | Income Tax Assessment Act 1997 Section 118-135 | Income Tax Assessment Act 1997 Section 118-160

Reasons for decision: Summary: Subsection 118-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss made by an individual from a capital gains tax (CGT) event that happens in relation to a dwelling is disregarded if the dwelling was their main residence throughout their ownership period. Section 118-115 of the ITAA 1997 defines dwelling to include: (a) a unit of accommodation that: (i) is a building or is contained in a building; and (ii) consists wholly or mainly of residential accommodation; and (b) a unit of accommodation that is a caravan, houseboat or other mobile home; and (c) any land immediately under the unit of accommodation. Section 118-135 of the ITTA 1997 states if a dwelling becomes your main residence by the time it is 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. The meaning of the expression ‘the time it was first practicable’ in section 118-135 should not be read down to mean the time it was first convenient. If you do not move into the dwelling when it first becomes practicable to do so, the section does not apply to treat the dwelling as a main residence. This means that the dwelling will only be you main residence from the time you move in. The exemption is not available if you have never resided in the dwelling. The mere intention to occupy the dwelling as a main residence is insufficient to obtain the exemption. The main residence exemption can be chosen for a CGT event that happens to vacant land after a dwelling that is your main residence is accidently destroyed, in accordance with section 118-160 of the ITAA 1997. As the dwelling was not your main residence you cannot apply section 118-160 of the ITAA 1997. You are therefore unable to apply the main residence exemption to any capital gains made on disposal of the property.