Private ruling: Capital gains tax
Date of advice: 26 February 2016
Published: April 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the main residence exemption apply to allow you to be exempt from paying capital gains tax on the disposal of your interest in an "off the plan" apartment purchase if you sell it before settlement date and before moving in? | A1: No.

Relevant facts and circumstances: You signed a contract in 20XX to purchase an off the plan apartment. A small deposit of the purchase price was paid at the time of signing the contract. From the contract date until recently you never considered selling the apartment prior to its completion or renting it out after completion. It was intended to be your main residence. The project was originally scheduled to be completed in 20ZZ but it suffered significant delays. The contract is currently expected to settle in 20ZZ. You have not lived in the property. Although you and your spouse were originally intending on moving into the apartment upon completion, you are now considering selling it and purchasing another property to move into in a different area. You have not yet committed to purchasing another property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 and | Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common CGT event, event A1, occurs when you dispose of a CGT asset to someone else. Interests in property are considered CGT assets. An off-the-plan purchase occurs when you enter into a contract to purchase new residential taxable Australian property before the construction is completed. In these cases, the purchaser enters into a contract, usually paying a deposit on signing the contract, with settlement and payment of the balance of the purchase price not occurring unless a specified event happens. This could be the finalisation of all capital works needed before building can commence or the completion of the building or apartment. The date of settlement will determine what is being supplied in relation to "off the plan" sales. Prior to settlement, the supply is that of a contractual right to the property. At settlement, the supply becomes the supply of new residential premises. In your case, you entered into an "off the plan" purchase with a settlement date scheduled for later in 20ZZ. As settlement is yet to occur, your interest in the property is a contractual right to the property rather than the residential premises itself. If you dispose of this contractual right before the settlement date, you will have a capital gains tax obligation. Section 118-110 of the ITAA 1997 states that under certain circumstances you can disregard any capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence for the entire period you owned it. A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved into it as soon as practicable after that time. If you purchased the dwelling this would generally be the date of settlement of the purchase contract. A mere intention to occupy a dwelling as your main residence - without actually doing so - is not sufficient to obtain the exemption. In your case, the main residence exemption does not apply as your interest in the property is currently only a contractual right to it. As a result there is currently no residence for you to move into to claim this exemption.