Private ruling: Capital Gains Tax
Published: January 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Can you disregard any capital gain or loss made on the disposal of a property you intended to be your main residence? No.


Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-35

Reasons for decision: Detailed Reasoning - Capital Gains Tax: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer makes 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. A taxpayer makes a capital gain if a their capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if a taxpayer received more for an asset than they paid for it. A taxpayer makes a capital loss if their reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset. Capital gains tax is not a separate tax, it forms part of a taxpayer's assessable income and is taxed at each taxpayer's marginal tax rate. | Detailed Reasoning - CGT - main residence: Section 118-110 of the ITAA 1997 provides that 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. Generally, if you build a dwelling on land you already own, the land does not start to qualify for exemption under the main residence exemption provisions until the dwelling actually becomes your main residence. However, section 118-150 of the ITAA 1997 allows you to choose for the main residence exemption to apply to land for up to four years before the dwelling becomes your main residence. You can only make this choice if the dwelling becomes your main residence as soon as practicable after the building work is finished and it continues to be your main residence for a minimum of three months (subsection 118-150(3) of the ITAA 1997). Taxation Determination TD 51 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 A mere intention to occupy a dwelling as your main residence without actually doing so is not sufficient to get the exemption. | Detailed Reasoning - Moving into the dwelling: To establish a dwelling as a main residence you must move in as soon as practicable. The term as soon as practicable is used in section 118-135 of the ITAA 1997 to provide some leeway from what would otherwise be a strict requirement that the full exemption would only be available if the property became your main residence on the date you acquired it (that is, you would have to physically move in on that day). You never moved into the property due to the house not being completed. You are now going to sell the property as it is costing too much to rent and pay the mortgage on the property. The Commissioner has no discretion to exempt you from any capital gain due to financial hardship and there is no provision in the law which allows an exemption due to financial hardship. Accordingly you are required to declare any capital gain in your tax return in the financial year the property is disposed of.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You and your spouse purchased a block of vacant land. | Your intention was to build a residential family home on this block. | You contracted a builder to construct a home on the land and a contract was signed on. | The construction company went into liquidation and the house was left at stage two of the building process. | You are now required to rent a property and to pay costs associated with the house such as the mortgage which has blown the cost out. | Your only option is to sell the incomplete house.