Private ruling: CGT - main residence - construction of dwelling - Commissioner's discretion
Published: February 2014
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion and extend the 4 year period in accordance with subsection 118-150(4) of the Income Tax Assessment Act 1997 ? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-150 Part 18 of the Tax Laws Amendment (2011 Measures No. 2) Bill 2011

Reasons for decision: Summary: The most common capital gains tax event (CGT event A1) happens if an individual disposes of a CGT asset to another entity. The time of the event is when the contract for the disposal is entered into, or if there is no contract, when the change of ownership occurs. | Detailed Reasoning - Main residence exemption: Generally, you can disregard a capital gain or capital loss made on the disposal of a property that is your main residence if: · the property was your home for the whole period you owned it · the property was not used to produce assessable income while you were living there, and · any land on which the dwelling is situated is not more than two hectares. Section 118-150 of the Income Tax Assessment Act 1997 extends the CGT main residence exemption to allow you to treat land as your main residence for up to four years if you build, repair or renovate a dwelling on the land that subsequently becomes your main residence. Part 18 of the Tax Laws Amendment (2011 Measures No. 2) Bill 2011 amended section 118-150(4) to give the Commissioner a discretion to extend this period where a taxpayer does not build, repair or renovate a dwelling and establish it as their main residence within four years. The amendment received Royal Assent on 27 June 2011 and applies to CGT events that happen after that date. The Commissioner would be expected to exercise the discretion in situations such as the following: · When the taxpayer is unable to build, repair or renovate the dwelling within this time period due to circumstances outside their control. For example, the relevant builder becomes bankrupt and is unable to complete the building, repairs or renovations. · When the taxpayer is unable to build, repair or renovate the dwelling due to unforeseen circumstances arising during this period. For example, the taxpayer or a family member has a severe illness or injury. · In circumstances when building, repairing or renovating the dwelling within the four years would impose a severe financial burden on the taxpayer. For example, the taxpayer would be required to incur an excessively high level of debt relative to their income. Consequently, the taxpayer may spend time accumulating sufficient savings (relative to their income) to build, repair or renovate a reasonable dwelling relative to their circumstances. Based on the facts you have provided, it is considered appropriate for the Commissioner to exercise the discretion provided under subsection 118-150(4) in your circumstances.

Relevant facts: You purchased a dwelling with your sibling as tenants' in common after 19 September 1985. | You planned to demolish the existing dwelling and construct a duplex on the land. | You planned to live in one of the dwellings and your sibling would reside in the other dwelling. | Your parent was going to undertake a project manager role as they have extensive skills in the construction industry. | The planned duration of the project was expected to be a number of years. | You experienced delays in having building plans approved by the Local Council. | Your parent became seriously ill during the construction of the dwellings, which caused delays. | You also experienced cash flow problems during construction. | You engaged subcontractor's to undertake some of the work and unfortunately this work was not completed satisfactorily, which caused delays whilst this work was rectified. | You moved into the dwelling in the 200X income year, whilst the construction was incomplete and you had not obtained an occupancy certificate from the Local Council. | You will sell the dwelling prior to 30 June 20XX