Private ruling: Main residence exemption
Date of advice: 2 September 2024
Published: 14 October 2024
Ruling period: Year ending XXXXX June XXXXX
Date scheme commenced: XXXX July XXXX

Ruling: Q1: Will any capital gain or capital loss you make from the CGT event that happens due to the sale of your property be disregarded? | A1: No.

Relevant facts and circumstances: You purchased the property at XXXX, XXXXX, XXXXXX, xxxx on XX xxxx XXXX. The property is under 2 hectares. The property has a xxxxx built on it that is designated as a XXXX XXXX non-habitable building. XXXX xxxx buildings include xxxxx, xxxxxx, and xxxxxx. You have decided against building a house on the property due to cost attached to construction. You will sell the property during the year ending xx June XXXX. The contract of sale will be for the vacant land because the shed is not approved with the council as a habitable building. The XXXXXXX XXXXX states on its website that: "XXXXX XXXXXXXXXXXXX" The shed on the land has entirely been used for residential purpose, and you have lived in the xxxx along with your family. There is a total of x people living in the xxxx - x adults, x children. You do not have an occupancy certificate for the xxxx. Your personal belongings are in the xxxx. This property is also your main mailing address. Total floor area of the XXXX is xxxx-metre square. The xxxx has areas set aside as 2 bedrooms. The xxxx has other areas used as a xxxxx, xxxxx, xxxxx, and xxxxx, x underground xxxxx that provide all water to the xxxxxx, xxxxxxx. The xxxxx is used entirely for accommodation purposes. The XXXXXXXX has not prevented you from residing in the xxxx on a temporary basis due to it being classified it as a XXXX xxxx non-habitable xxxxx noting that you are allowed to temporarily reside in such a xxxx under certain condition, for example when building a new dwelling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-115

Reasons for decision: Detailed Reasoning - Main residence exemption: Generally, the capital gains provisions apply when you sell an asset unless there is an exemption. Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides an exemption for the sale of your main residence if the exemption conditions are satisfied. One of those exemption conditions is that the sale is of (or includes) a dwelling. This is about the physical characteristics of a building that is part of the sale and applies independently to the way you used it. (Use of the building as your main residence is a different condition that must also be satisfied.) | Detailed Reasoning - What is a dwelling?: Subsection 118-115(1) of the ITAA 1997 defines 'dwelling' as it is used in the main residence exemption. It states: A dwelling includes: (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. The shed not a traditional dwelling such as a house. Therefore, the definition can only be satisfied if the conditions in paragraph 118-115(1)(a) of the ITAA 1997 are met. The conditions in paragraph 118-115(1)(a) of the ITAA 1997 suggest that the terms 'unit of accommodation' and 'consist wholly or mainly of residential accommodation' in the context used connote a substantial permanent structure that is intended to be permanently used as residential accommodation. The guidelines provided by the XXXXX XXXXX state that the xxxx is a xxxxx xxx non-habitable building and they are not designed for normal domestic habitable activities. The guidelines allow use as a temporary home in certain circumstances such as while building a new dwelling house. The attitude expressed in the XXXXXX guidelines about the shed is not consistent with it being treated as a dwelling for main residence purposes. Therefore, as the XXXX is not a XXXXX, you will not be eligible for any main residence exemption on the capital gain or loss you incur from the CGT event due to the sale of the property.