Private ruling: Capital Gains Tax
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will a capital gain or capital loss be disregarded on the sale of your property? | A1: Yes

Relevant facts and circumstances: The Taxpayer purchased a house. The settlement date of the property was in late 20XX The house was purchased to be the Taxpayer's permanent residence. At the time of purchase, the occupants unexpectedly refused to move out and a court case ensued which lasted months. During this process which prevented the Taxpayer moving in the house, the occupants made personal threats against the Taxpayer and considerable damage was done to the house. The Taxpayer feared repairing the house and feared he/she would be in personal danger. The Taxpayer moved into the house in early 20YY. The Taxpayer has not owned another property or another share in a property. The Taxpayer did not receive any rental income from the property during the period of ownership. The Taxpayer received an insurance payout. The Taxpayer used some of the payout for a clean up and repairs to the property. The balance of the insurance payout was retained by the Taxpayer. The house was sold in the 20YY year. The Taxpayer sold the house because he/she did not feel safe living in the property due to the threats of the previous occupants.

Relevant legislative provisions: Subsection 118-110(1) of the Income Tax Assessment Act 1997 | Section 118-125 of the Income Tax Assessment Act 1997 | Section 118-130 of the Income Tax Assessment Act 1997 | Section 118-135 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Capital gains tax (CGT) is the tax you pay on certain gains that you make from the sale of CGT assets acquired after 19 September 1985. As a general rule you can disregard any gain or loss realised on the disposal of a dwelling that was your main residence. Subsection 118-110(1) of the Income Tax Assessment Act 1997(ITAA 1997) states: A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *CGT asset that is a *dwelling or your *ownership interest in it is disregarded if: (a) you are an individual; and (b) the dwelling was your main residence throughout your *ownership period; and (c) the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person. Section 118-125 of the ITAA 1997 states: Your *ownership period of a dwelling is the period on or after 20 September 1985 when you have an *ownership interest in the dwelling. Section 118-130 of the ITAA 1997 states: You have an ownership interest in a dwelling if you have a legal or equitable interest in the land on which the dwelling is erected, or a licence or right to occupy it. In your particular case you do not satisfy the strict requirements of subsection 118-110(1) of the ITAA 1997, as the residence was not your main residence throughout your ownership period. Your ownership period of the residence commenced in the 20XX year. However you advised that you only moved into the residence in the 20YY year. Notwithstanding the fact that the residence was not your main residence throughout your ownership period, section 118-135 of the ITAA 1997 provides a rule which may extend the main residence exemption. Section 118-135 of the ITAA 1997 provides: "If a dwelling becomes your main residence by the time it was first practicable for you to move into it after you acquired your ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence." What period would be covered by the expression "first practicable" depends on the circumstances of the particular case. The Explanatory Memorandum to Act. No 46 in 1997 (EM) states that the "provision takes account of situations where, for example, there is a delay in moving in because of illness or other reasonable cause. The exemption does not extend to cases where an individual is unable to move into the dwelling because it is being rented out. However, it would cover a period after the end of the tenancy if the owner could not take up residence immediately because of the nature of repairs required to the dwelling." Consistent with the approach taken in Taxation Determination TD 92/147, which also considers the scope of the word 'practicable', it is considered that the taxpayer's circumstances would only be relevant in limited circumstances. Example 1 in Taxation Determination TD 92/147 provides, in the context of section 118-150 of the ITAA 1997, that a delay can be occasioned due to flooding of a premises which would prevent a taxpayer moving into a property. Similarly, the reference to illness as a relevant factor in the EM suggests that the provision would only apply if the delay was due to something unforeseen. In the current case, it is considered that section 118-135 of the ITAA 1997 applies to extend the main residence exemption to your circumstances for the following reasons: the delay in moving into the residence occurred due to an "other reasonable cause." The refusal of the occupants to move out immediately, coupled with the fear occasioned by personal threats was clearly unforeseen; · the residence was never rented out; · immediate attempts were made to remove the occupants from the residence. As the property is considered to be your main residence, the main residence exemption should apply to your situation such that no CGT will be levied upon the disposal of the Residence and the insurance payout for the damage to the property is considered to be private in nature and is not assessable as income or subject to CGT.