Private ruling: Capital gains tax – main residence exemption
Date of advice: 15 August 2017
Published: November 2017
Ruling period: 30 June 201D
Date scheme commenced: 1 July 201C

Ruling: Q1: Can you apply the main residence exemption on disposal of property once the building is completed? | A1: No | Q2: Can an individual apply a 50% discount capital gain to an asset held for more than 12 months? | A2: Yes

Relevant facts and circumstances: In 201A you and your spouse purchased off the plan with the intention of making this dwelling your main residence once building had completed. Your relationship with your spouse ended in 201B. The construction of the property is due to be completed in August 201C. Due to the cessation of the relationship, this dwelling will be placed on the market for sale once construction is completed. You have no other property with your spouse.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subdivision 115-A | Income Tax Assessment Act 1997 section 118-115 | Income Tax Assessment Act 1997 section 118-135 | Income Tax Assessment Act 1997 section 118-150

Reasons for decision: Detailed Reasoning - Main residence exemption – building a new home: Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence (section 118-110 of the ITAA 1997). In order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it (section 118-110 and 118-185 of the ITAA 1997), must not have been used to produce assessable income (section 118-190 of the ITAA 1997) and any land on which the dwelling is situated should not be more than two hectares. Furthermore, for this exemption to apply it must be established that a property is your main residence or home. Whether a dwelling is an individual's principle residence depends on the facts of each case. The factors will be relevant when working out whether your dwelling is your main residence: ● The length of time you have lived there ● Your personal belongings in the house ● Where your mail gets delivered ● Connection of services ● Your electoral role address and ● Your intention to occupy the dwelling A mere intention to construct or occupy a dwelling as your main residence without actually doing so is not sufficient to obtain the exemption. (Quick code 51236 - Guide to capital gains tax 2017). | Detailed Reasoning - Treating land as your main residence while you build: If you are building a home on vacant land, you can choose to treat your land as your main residence for up to four years before you move into the home, only under certain circumstances. You must first finish building, repairing or renovating the dwelling and: ● Have an ownership interest in the land ● Move into the dwelling as soon as practicable after it is finished, and ● Continue to use the dwelling as your main residence for at least three months after it becomes your main residence. If you choose to treat your land as your main residence while you build, you cannot treat any other dwelling as your main residence for the same period, except for a limited time under the moving from one main residence to another rule. If you choose to move into your dwelling upon completion, this will only entitle 'that person’ who resides in the dwelling to the main residence exemption. If you choose to rent out the newly built property after it is completed, or do not move into it as soon as possible, you cannot claim a main residence exemption for the vacant land or for any period that your property is rented out. In your case, you purchased off the plan in 201A and construction is to be completed by 201C. You did for all intent purposes have every intention to move into this dwelling once the construction had been completed, but a mere intention is not sufficient to obtain the exemption. If the dwelling is disposed of after completion, you cannot disregard the capital gains tax or the capital loss. | Detailed Reasoning - Discount capital gain: Section 115-5 of the ITAA 1997 states that a discount capital gain is a capital gain that meets the requirements of sections 115-10, 115-15, 115-20 and 115-25. Section 115-10 of the ITAA 1997 states that: To be a discount capital gain, the capital gain must be made by: a) an individual; or b) a complying superannuation fund; or c) a trust; or d) a life insurance company in relation to a discount capital gain As you are an individual who has made a capital gain, you have satisfied this requirement. Section 115-15 of the ITAA 1997 requires that the discount capital gain must be made after 21 September 1999. You have satisfied this requirement as purchase was made in 201A. To be a discount capital gain under Section 115-20 of the ITAA 1997 requires that the discount capital gain must be worked out using a cost base that is not referenced to indexation at any time. Section 115-25 requires that the discount capital gain must be on an asset acquired at least 12 months before. You have satisfied this requirement as you acquired the asset in 201A. Where you satisfy the requirements of sections 115-10, 115-15, 115-20 and 115-25 you can reduce your discount capital gain by 50% (section 115-100 of the ITAA 1997). In your case, as you have satisfied all of the requirements under section 115-5 of the ITAA 1997, you are entitled to claim a 50% discount on your capital gain.