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Can a period in which a taxpayer chooses to treat a dwelling as his or her main residence under section 118-145 of the Income Tax Assessment Act 1997 (ITAA 1997) be taken into account in working out whether the dwelling continues to be the taxpayer's main residence for at least 3 months, under paragraph 118-150(3)(a) of the ITAA 1997?

Yes. A period in which a taxpayer chooses to treat a dwelling as his or her main residence under section 118-145 of the ITAA 1997 is taken into account in working out whether the dwelling continues to be the taxpayer's main residence for at least 3 months under paragraph 118-150(3)(a) of the ITAA 1997.

The taxpayer purchased land in late 2000 and commenced building a dwelling on the land in mid 2001.

In early 2002, as soon as practicable after construction of the dwelling was completed, the taxpayer moved into the dwelling.

The taxpayer resided in the dwelling for approximately 2 1/2 months.

Due to the lack of employment opportunities in the area in which the dwelling was situated, and other circumstances, the taxpayer moved interstate.

The dwelling was rented after the taxpayer moved out and is currently being rented.

The taxpayer intends to sell the dwelling. They do not own any other dwellings.

The main residence exemption under Subdivision 118-B of the ITAA 1997 is generally available to a taxpayer if a dwelling is actually used or occupied as a main residence. However, in some circumstances, the exemption can be extended to the period before and/or after the dwelling actually becomes a taxpayer's main residence.

Section 118-150 of the ITAA 1997 deals with building, repairing or renovating a dwelling on land in which a taxpayer has an ownership interest. Under section 118-150, the taxpayer can choose to extend the main residence exemption for the dwelling to include the shorter period of: • 4 years before the dwelling becomes the taxpayer's main residence; or • the period starting from when the taxpayer acquired their ownership interest in the land and ending when the dwelling becomes their main residence.

However, the taxpayer can make this choice only if the dwelling: • becomes their main residence as soon as practicable after the dwelling is built, repaired or renovated (paragraph 118-150(3)(a) of the ITAA 1997); and • continues to be their main residence for at least 3 months (paragraph 118-150(3)(b) of the ITAA 1997).

For the purposes 118-150(3)(b) of the ITAA 1997, once main residence has been established, there are two ways in which it can continue. Firstly, it continues for as long as the owner actually maintains the dwelling as his or her main residence. Secondly, where the owner chooses, it continues for a further period after actual residence ceases (section 118-145 of the ITAA 1997). Both of these periods are taken into account in determining whether the 3 month requirement in paragraph 118-150(3)(b) is satisfied.

In the present case, the dwelling was the taxpayer's actual main residence for a period of less than the 3 months. However, this period was immediately succeeded by a period in which the taxpayer treated the dwelling as her main residence under section 118-145. For the purposes of paragraph 118-150(3)(b) of the ITAA 1997, the latter period extended the time in which the dwelling continued to be the taxpayer's main residence to the requisite period of at least 3 months.