Private ruling: Capital gains tax - main residence exemption
Published: July 2012
Ruling period: Year ended 30 June 2011.
Date scheme commenced: 1 July 2010.

Ruling: Question and answer | Can you disregard any capital gain or loss made on the disposal of a property you intended to be your main residence? | No.

Relevant facts and circumstances: You purchased a share in land a number of years ago. You entered into a contract with a construction company to have units built on the land of which one would become your main residents. Construction commenced on the units but was never completed. The units are uninhabitable. The construction company has approached you to purchase your share in the units to them. You rented a property during the construction period and did not treat any other dwelling as your main residence. Your intention was to move into the unit as soon as construction was completed.

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 118-35. Reasons for decision | Capital gains tax | Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer makes 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. | A taxpayer makes a capital gain if a 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. | Capital gains tax is not a separate tax, it forms part of a taxpayer's assessable income and is taxed at each taxpayer's marginal tax rate. | 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 ownership period, and must not have been used to produce assessable income. | Generally, if you build a dwelling on land you already own, the land does not start to qualify for exemption under the main residence exemption provisions until the dwelling actually becomes your main residence. | However, section 118-150 of the ITAA 1997 allows you to choose for the main residence exemption to apply to land for up to four years before the dwelling becomes your main residence. You can only make this choice if the dwelling becomes your main residence as soon as practicable after the building work is finished and it continues to be your main residence for a minimum of three months (subsection 118-150(3) of the ITAA 1997). | Whether a dwelling is a taxpayer's sole or principal 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 taxpayers 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 taxpayers address on the Electoral Roll | · the connection of services such as telephone, gas and electricity | · the taxpayers 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. | Moving into the dwelling | To establish a dwelling as a main residence you must move in as soon as practicable. The term as soon as practicable is used in section 118-135 of the ITAA 1997 to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the property became your main residence on the date you acquired it (that is, you would have to physically move in on that day). | You never moved into the property due to the unit not being completed. | You intend to sell the unit being your share in the land and property to the construction company. | The property has never been used as your main residence and although you intended it to be your main residence a mere intention to do so is not enough to be entitled to the main residence exemption. | Accordingly you are required to declare any capital gain in your tax return in the financial year the property is disposed of.


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