Private ruling: Income tax - Capital gains tax - main residence exemption
Date of advice: 2 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you and your spouse entitled to a full main residence exemption for dwelling B? | A1: No. | Q2: Are you and your spouse entitled to a partial main residence exemption for dwelling B? | A2: No

Relevant facts and circumstances: You and your spouse purchased a dwelling A as your main residence. You and your spouse then purchased dwelling B, with the intention to eventually make this your main residence. Soon afterwards, you and your spouse sold dwelling A and also purchased vacant land as an investment. You and your spouse moved your personal belongings into dwelling B. Dwelling B is located approximately 200 kms away from the dwelling A, and the location where you are both employed. After selling the dwelling A, you and family moved in to another family members' home (dwelling C) and continued to reside until the present time. You resided in dwelling C four days a week and visit dwelling B three days a week. Your children are enrolled and attended school close to dwelling C and you and your spouse continued to work close to dwelling C. You and your spouse updated you mailing address so that your mail was delivered to dwelling C. From around July 20XX you and your spouse undertook extensive renovations to dwelling B. Your intention changed and you and your spouse decided to sell dwelling B and build a new main residence on the vacant block. You and your spouse put dwelling B on the market, and sold the dwelling with settlement occurring in the 2015-16 financial year. You and your spouse have made a capital gain on the sale of dwelling B.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) Section 102-20 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 subsection Section 118-185 | Income Tax Assessment Act 1997 section 118-135

Reasons for decision: Summary: Generally, you will make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. | Detailed Reasoning - Main residence: Generally, you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income. However, different calculations apply when a dwelling was your main residence for only part of your ownership period. To qualify for a partial exemption, the dwelling will need to be established as a main residence at some point during the ownership period. Taxation Determination TD 51W (TD 51W) states that whether a dwelling is a taxpayer's sole or principal residence is an issue which depends on the facts in each case. Some factors may include, but are not limited to: • the length of time the taxpayer has lived in the dwelling • the place of residence of the taxpayers family • whether the taxpayer has moved his or her personal belongings into the dwelling • the address to which the taxpayer has his or her mail delivered • the taxpayers address on the Electoral Roll • the connection of services such as telephone, gas and electricity • the taxpayers intention in occupying the dwelling While TD 51W is withdrawn, the factors are still relevant when determining when a dwelling is a person's principle residence. A mere intention to occupy a dwelling as your main residence without actually doing so is not sufficient to qualify for a main residence exemption. In your case you and your spouse did not move into dwelling B and establish it as your main residence as soon as practicable. You had resided in dwelling C while the dwelling B was being renovated and visited dwelling B for only a few days each week. Based on the information provided, it is viewed that dwelling C is your common law main residence, as you spend most of your time there, your children were enrolled in preschool there and you and your spouse worked nearby. Although you had some possessions at the dwelling B, this is not sufficient to support this as your main residence, given the other factors involved. The fact that you intended to move into dwelling B and did not own another main residence during the same period is not enough to exempt you from paying capital gains tax. For the main residence exemption to apply, you have to establish a dwelling as your main residence. Based on the information provided, the Commissioner does not view you established dwelling B as your main residence. Accordingly, you are not entitled to a full or partial main residence exemption and you are liable for capital gains tax on the sale of dwelling B.