Private ruling: Capital gains tax exemption and building a dwelling
Date of advice: 21 March 2017
Published: August 2017
Ruling period: 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: If you dispose of the new property once building is completed are you entitled to an exemption from capital gains tax (CGT)? | A1: No. | Q2: Are you entitled to an exemption from CGT if you live in the property for 3 months once building is complete and then sell it? | A2: Yes.

Relevant facts and circumstances: You purchased a block of land late 2015. The construction of your new home commenced in late 2016. The completion of your new home is due to be finished in mid 2017. You had every intention to move into your newly built home upon completion, making this dwelling your primary place of residence. You are considering living in the dwelling for a period of 3 months and then selling it.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-150

Reasons for decision: Summary: Capital gains tax Under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or capital loss may arise if a CGT event occurs to a capital asset. The most common event is CGT event A1, where a person disposes of the CGT asset. Section 118-110 states a capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is the 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. Main residence exemption Generally, your main residence is exempt from a CGT event if that dwelling was your main residence throughout your ownership period on or after 20 September 1985 and that you had an ownership interest in the dwelling or the land (acquired on or after 20 September 1985) on which the dwelling is later built. That dwelling becomes your main residence by the time it was first practicable for you to move into after you acquired your ownership interest and that dwelling was treated as your main residence from when you acquired the interest until it became your main residence. A mere intention to construct or occupy a dwelling as your main residence - without actually doing so - is not sufficient to obtain the exemption. Building a new home If you build a dwelling on land you already own, the land does not qualify for exemption until the dwelling becomes your main residence for CGT purposes. You can choose to treat land as your main residence for up to four years before the dwelling becomes your main residence in certain circumstances. You can choose to have this exemption apply if you acquire an ownership interest (other than a life interest) in land and you: ● build a dwelling on the land ● repair or renovate an existing dwelling on the land, or ● finish a partly constructed dwelling on the land. There are a number of conditions that you must satisfy before you can claim the exemption. You must first finish building, repairing or renovating the dwelling and then: ● 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. Once you make the choice, no other dwelling can be treated as your main residence during the period. Application to your circumstances If you do not move into your new home once fully completed, you cannot claim a main residence exemption. A mere intention to construct or occupy a dwelling as your main residence, without actually doing so, is not sufficient to obtain the exemption. If you move into the home as soon as practicable and make it your main residence and continue to use the home as your main residence for at least three months you will be entitled to a full main residence exemption. Note that once you make this choice you cannot treat any other dwelling as your main residence during that period.