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Income tax: capital gains: is the main residence exemption relevant when the proceeds of sale of a dwelling are treated as income under ordinary concepts?

No. In cases where the sale of a dwelling gives rise to income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), for example. as part of a business or from an isolated profit-making transaction, that income remains assessable even if a main residence exemption is available for CGT purposes.

The main residence exemption in Subdivision 118-B of the ITAA 1997 is a capital gains tax exemption only and does not extend to exempt from tax ordinary profits or business income. Example : A builder constructs a spec home in which he and his family reside while construction proceeds on another spec home. Any profit on sale which gives rise to income is fully assessable to the builder even if a main residence exemption is available for CGT purposes.

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