Private ruling: Capital Gains Tax - main residence
Published: May 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Are you entitled to the main residence exemption on your property? | Yes.

Relevant facts and circumstances: You are a non-resident of Australia for taxation purposes. You purchased a block of land a number of years ago. You had a house constructed on the land which was completed some months after the purchase of the land. You are choosing to treat the land from its purchase until the house was built as main residence days under section 118-150. You did not have any other main residence for the period the land was vacant. You sold the property. The property was solely in your name. The property was your main residence for the whole of your ownership period. The property was never used to derive income. The property land size was 2000 square metres. After the house was built you occupied the property as your main residence. You moved all your belongings into the property as soon as it was built. You had postal delivery to the property as soon as you moved in. All services were connected to the property. The property was your registered electoral roll address. There was a period of time that you did not live in the property. During the period you did not live in the property you did not treat any other dwelling as your main residence. Your spouse did not treat any other dwelling as their main residence for the whole of the ownership period.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-135 | Income Tax Assessment Act 1997 section 136-25

Reasons for decision: Detailed Reasoning - Capital Gains tax: A non-resident of Australia makes an Australian capital gain or capital loss where a capital gains tax event happens to an asset that has the necessary connection with Australia (section 136-25 of the Income Tax Assessment Act 1997 (ITAA 1997 ) ). Generally, these assets are: · land in Australia, · a share in a private Australian company, · a share in a public company where a taxpayer and their associates own more than 10% in the company, · a unit in a unit trust where a taxpayer and their associates own more than 10% in the unit trust an option or a right to acquire one of the above assets. A taxpayer makes a capital gain if their capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if a taxpayer received more for an asset than they paid for it. A taxpayer makes a capital loss if their reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset. CGT - main residence Section 118-110 of the 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 property was not used to produce assessable income and any land on which the dwelling is situated is not more than two hectares (section 118-110 of the ITAA 1997). For the purpose of the main residence exemption, you have an ownership interest in a dwelling or land (on which the dwelling is later built) you acquire under a contract from the time you get legal ownership, unless you have a right to occupy it at an earlier time (section 118-130 of the ITAA 1997). You have a legal ownership of a dwelling or land (on which the dwelling is later built) from the date of settlement of the contract of purchase (or if you have a right to occupy it at an earlier time, that time) until the date of settlement of the contract of sale. | Detailed Reasoning - Building a dwelling: If you build a dwelling that becomes your main residence you can choose to treat the period from when you acquired your ownership interest in the land until you moved into the dwelling as main residence days (section 118-150 of the ITAA 1997). You can only make this choice if: · a dwelling on the land you construct becomes your main residence as soon as practicable after the work is finished; and · it continues to be your main residence for at least three months. · There is a time limit during which this choice can operate. This is the shorter of: · four years before the dwelling becomes your main residence; or · the period starting when you acquired your ownership interest in the land and ending when the dwelling becomes your main residence. A consequence of making this choice is that for the period that the choice applies no other dwelling can be considered to be your main residence except where you move from one main residence to another. Whether a dwelling is a taxpayer's main residence is an issue which depends on the facts in each case. Some factors may include, but are not limited to: · the length of time the taxpayer has lived in the dwelling, · the place of residence of the taxpayer's family, · whether the taxpayer has moved his or her personal belongings into the dwelling, · the address to which the taxpayer has his or her mail delivered, · the taxpayer's address on the Electoral Roll, · the connection of services such as telephone, gas and electricity, · the taxpayer's intention in occupying the dwelling. A mere intention to occupy a dwelling as your main residence without actually doing so is not sufficient to get the exemption. In your case, you moved into the dwelling as soon as practicable after the house was built and it continued to be your main residence for more than three months. Therefore, you can choose to treat the land as your main residence for four years before the dwelling became your main residence. The absence rule under section 118-45 of the ITAA 1997 allows a taxpayer to choose to treat a dwelling as their main residence even though they no longer live in it. A taxpayer cannot make this choice for a period before a dwelling first becomes their main residence. If a taxpayer does not use their dwelling to produce income, for example, it is left vacant or used as a holiday home then they can treat the dwelling as their main residence for an unlimited period after they stop living in it. If a taxpayer does use their dwelling to produce income, for example, they rent it out or it is available for rent, they can choose to treat it as their main residence for up to six years after they stop living in it. For the period you were not living in the property you were treating no other dwelling as your main residence and elect the property as your main residence for the period of absence. You are entitled to a full main residence exemption on the property.