1 Did you establish the property as your main residence for the purposes of the main residence exemption?
1 No. Question 2 Are you able to use the absence rule to treat the property as your main residence? Answer 2 NA This ruling applies for the following period : Year ended 30 June 20XX The scheme commenced on: 1 July 20XX
You purchased the property under a contract with settlement occurring a number of years ago. These dates are based on your recollection, as the contract documents are no longer available. At the time of purchase, you intended that the property would be your first home. You have advised that you applied for a home loan with a financial institution as an owner-occupier. Immediately after settlement, you and your parent commenced substantial renovations to make the property suitable for long-term occupation. Renovation work continued for a few months. A couple of months after settlement, you travelled overseas for a few months. During this period, your parent continued renovating the property in your absence. The delay in moving into the property was due to the renovations and temporary overseas travel. You moved into the property in the same year that you travelled overseas. You moved a number of items into the dwelling. You did not use a removalist to move your belongings in the property. You vacated the property in the month after you moved in. You moved back to your parents' home for financial reasons.
The property was advertised for rent in the month after you moved out, and the first rent was received that same month. Utilities (electricity, gas, water) were connected in your name, but you no longer have evidence of these documents in your name. Your driver's licence address was updated to the property. You did not update postal addresses for the ATO, Medicare, banks, or electoral roll with the property's address. The property was rented continuously from that time. Between the date you purchased the property and the purchase of a family home several years later, you did not treat any other property as your main residence. You sold the property a couple of years ago, with settlement occurring in that same year.
Income Tax Assessment Act 1997 section 118-110 Income Tax Assessment Act 1997 section 118-135 Income Tax Assessment Act 1997 section 118-185 Income Tax Assessment Act 1997 Division 115
You make a capital gain or loss because of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985. CGT events are those transactions that occur to a CGT asset that result in you either making a capital gain or capital loss. You make a capital gain if your capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if you receive more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset, for example, if you receive less for an asset than you paid for it. Capital gains tax is not a separate tax; it forms part of your assessable income and is taxed at your marginal tax rate. CGT main residence Section 118-110 of the Income Tax Assessment Act 1997
(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. Whether a dwelling is your main residence depends on the actions of you and your family. Generally, a dwelling is your main residence if: • You and your family live in it • Your personal belongings are in it • It is the address your mail is delivered to • It is your address on the electoral roll • Services such as gas and power are connected. The length of time you stay in the dwelling and whether you intend to occupy it as your home may also be relevant. In this sense, your intentions can help to explain your actions or affect the weighting given to certain actions over others. However, your intentions are not a substitute for your actions.
Section 118-135 of the ITAA 1997 extends the main residence exemption to take account of the time needed to move into a dwelling. It includes the period from when the taxpayer acquired the main residence to when it was first practicable to move into the dwelling after it was acquired. Essentially, if a dwelling becomes a taxpayer's main residence by the time it was first practicable for the taxpayer to move into it after acquiring their ownership interest, the dwelling is treated as the taxpayer's main residence from when the ownership interest was acquired until it actually became the taxpayer's main residence. The meaning of the expression "the time it was first practicable" in section 118-135 does not mean the time when it was first convenient. The phrase 'as soon as practicable' is not defined in the legislation.
However, the Explanatory Memorandum (EM) accompanying the introduction of section 118-135 (The EM to the Tax Law Improvement Bill (No. 1) 1998) explains that whilst section 118-135 is intended to take account of situations where there is a delay in moving in because of illness or other reasonable cause, it is not extended to the situation where the individual is unable to move into the dwelling because it is being rented out. The Explanatory Memorandum includes examples such as where there is a delay in moving in because of illness of the ownership interest holder or other reasonable cause. Section 118-135 of the ITAA 1997 is intended to apply in situations were moving into a dwelling is temporarily delayed due to reasons outside a person's control. In Couch & Anor v Federal Commissioner of Taxation [2009] AATA 41 at paragraph 14, the Tribunal confirmed that the 'mere intention to occupy a dwelling as a sole or principal residence, but without actually doing so, is insufficient to obtain the exemption.'
Where a full exemption is not available, you may be entitled to a partial exemption under section 118-185 of the ITAA 1997 where a dwelling was the main residence for part of the ownership period. The full exemption is proportionately reduced by reference to the period for which the dwelling was not the taxpayer's main residence. You calculate your capital gain or capital loss as follows: Capital gain or capital loss amount x Total of non-main residence days / total number of days in your ownership period. You advised that it was your intention for the property to be your main residence after you purchased it in May 20XX. The Commissioner is of the opinion that you did not move into the property as soon as practicable after settlement occurred in early XXX 20XX. You have advised that for approximately X to X months after settlement renovations were done on the property and you did not move in during this time. You decided to travel overseas for approximately X months from XXX/XXX 20XX, and this delayed you moving into the property. Occupying the property for a period of less than two months was not sufficient for it to be established as your main residence.
The period of less than X months did not enable you to engage in the day to day life usually experienced when a property is someone's home. You did not notify the ATO, Medicare or the Australian Electoral Commission of a change of address to the property. If it had been your intention to reside in the property as your main residence, it would be expected that you would have updated your address details with the ATO, Medicare and the Australian Electoral Commission accordingly. You have not been able to provide us with any documentation which lists the property as your address for the period from XXX 20XX when you moved into the property until XXX 20XX when you moved out. After the short period of you residing in the property, you then decided in XXX after gaining employment that you could not afford to live independently, and you moved back with your parents. The renovations and your trip overseas are not legitimate reasons for the delay in moving into the property after settlement.
You would have purchased the property knowing the renovations were required or that you wanted to have them carried out and you either had the trip booked when you purchased the property or made the plans after the property was purchased, either way you knew you were going overseas. The renovations and the overseas trip were not avoidable life events which prevented you from moving into the property they were choices you made. You are therefore not entitled to claim a main residence exemption for any period of your ownership of the property. You are required to declare any capital gain in your 20XX tax return that arose on the sale of the property in the 20XX income year. You may be entitled to a 50% CGT discount under Division 115 of the ITAA 1997 as you held your share of the Property for longer than 12 months, provided you meet the relevant criteria.