Private ruling: Capital gains tax - main residence exemption
Date of advice: 12 May 2016
Published: June 2016
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: When you dispose of the dwelling you intend to elect as your main residence, will it be eligible for the full main residence exemption? | A1: Yes.

Relevant facts and circumstances: You and your partner have owned a property since the 19XX-XX financial year. This property has been your main residence since that date. You now intend to demolish the building on your property, subdivide the block into two plots and build a house on each plot. While the houses are under construction, you intend to stay at another property, which isn't your main residence. Once the houses have been completed, you intend to elect one of these houses as your main residence. You intend to occupy this house as your main residence until you dispose of it. You intend to rent the other house out.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 118-B and | Income Tax Assessment Act 1997 section 118-150.

Reasons for decision: Summary: Under the main residence exemption provisions contained in Subdivision 118-B of the ITAA 1997, any capital gain or loss that a taxpayer makes on the disposal of a dwelling that is their main residence is disregarded. The exemption also extends to certain land that is adjacent to the dwelling. Generally, if a taxpayer builds a dwelling on land they already own, the land does not start to qualify for exemption under the main residence exemption provisions until the dwelling actually becomes the taxpayer's main residence. Section 118-150 of the ITAA 1997 allows a taxpayer to choose for the main residence exemption to apply to land for up to four years before the dwelling becomes their main residence. The taxpayer can only make this choice if the dwelling becomes the taxpayer's main residence as soon as practicable after the building work is finished and it continues to be their main residence for a minimum of three months (subsection 118-150(3) of the ITAA 1997). In your case, the property is currently your main residence. However once the house is demolished and the land is subdivided, only one plot of the subdivided land can continue to be your main residence for a period of up to four years, so long as: • once the dwelling is constructed you move in as soon as practicable after completion and • the dwelling continues to be the main residence of the taxpayer for a minimum of three months. You then intend to occupy this house as your main residence, until you dispose of it. Therefore on disposal of the property you elected as your main residence, you will be entitled to a full main residence exemption.