Private ruling: Sale of main residence- dwelling.
Date of advice: 28 November 2019
Published: February 2020
Ruling period: Year ending 30 June 2019 | Year ending 30 June 2020 | Your employment required you to be second in another state under terms of your employment contract. | As your secondment period was nearing an end, you and your spouse intended to return to your home state and buy a property for main residence purposes. | That year you and spouse entered into a land contract as joint tenants, with family members and purchased a pair of semi-detached dwellings, on a single title. | As you did not have the balance of the purchase price in savings to acquire 100% of the property, it was agreed between both parties, the amount contributed by the family members would be exchanged for ownership interest in the property. | Due to your secondment agreement in another state being continued for over a 12 month period, it was decided to rent out the property under a residential tenancy agreement, which commenced on shortly after the dwelling was purchased. | While you were working away, assessments were conducted on the property to estimate costs of the renovations, the cost of demolishing the existing pair of semi-detached dwellings, subdivision of the Torrens title and construction of a new pair of semi-detached dwellings. | After comparing the above estimated costs and consulting with an independent planner, you concluded to knock down and re-build. | Development approvals were sought from the Council and approvals to commence work were received one month later. | The tenants vacated the dwellings on the shortly after, in anticipation of the construction to be undertaken. | Demolition commenced immediately after the tenants vacated. | The following year, you and your spouse returned to you home state following the conclusion of your secondment term. | You and your spouse resided in rental accommodation whilst the dwellings were under construction, during this time you both did not have another main residence. | The demolition and building works were conducted by a licenced professional builder as per the requirements of DA. The works performed by the builder pursuant to a subcontracting agreement. | You have provided the costs incurred in relation to subdivision and demolition. | You and your spouse incurred a proportionate amount in the subdivision and build of the dwellings. | Construction was completed. The works resulted in two equally sized registered Torrens title lots and, a new pair of semi-detached dwellings. | Once construction was complete you and your spouse moved into the dwelling. | It was planned to rent out the other dwelling, but due to financial hardship the dwelling was sold in the following to pay back amounts owing to the family members. | Due to financial hardship you decided to sell your main residence in order to reduce your mortgage some time later. | Neither of you or any related entities have any intentions or plans to be involved in any future property development or land subdivision activities.

Ruling: Q1: Can you apply the main residence exemption, pursuant to section 118-150 of the Income Tax Assessment Act 1997 to dwelling 1? | A1: Yes. As you moved into the newly built dwelling as soon as practicable after the construction and continued to use the dwelling as your main residence for more than a three month period. You can apply the main residence exemption for the relevant period (partial exemption). | Q2: Will the sale of your ownership interest in dwelling 2 be considered a mere realisation of a capital asset? | A2: Yes. Any proceeds from the sale of your ownership interest in the dwelling, represents a mere realisation of a capital asset which will fall for consideration under the capital gains tax provisions in Parts 3-1 and 3-3.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-115 | Income Tax Assessment Act 1997 Section 118-140 | Income Tax Assessment Act 1997 Section 118-145 | Income Tax Assessment Act 1997 Section 118-150 | Income Tax Assessment Act 1997 Section 118-185 | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3