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ATO Interpretative Decision

ATO ID 2003/322 (Withdrawn)

Income Tax
Capital gains tax: main residence exemption - demolition and reconstruction of dwelling more than four years after demolished dwelling last occupied

Attention This ATO ID is withdrawn. Guidance on the basis of the decision in this ATO ID can be found in the Guide to capital gains tax (NAT 4151).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 21 July 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Does the taxpayer qualify for a full main residence exemption under Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of a dwelling that was built to replace an original dwelling that was demolished or destroyed more than four years before the new dwelling became the taxpayer's main residence?

Decision

No. Only a partial main residence exemption is available.

If the taxpayer makes a choice under section 118-150 of the ITAA 1997, the main residence exemption can apply for up to four years before the new dwelling becomes their main residence.

If the taxpayer does not choose for section 118-150 of the ITAA 1997 to apply, an exemption will only be available from the time that the new dwelling becomes the taxpayer's main residence.

Facts

The taxpayer purchased a dwelling in 1992 and resided in that dwelling until 1997 when the dwelling was demolished.

The taxpayer constructed a new dwelling on the land and this became their main residence in June 2002 (as soon as practicable after the construction of the dwelling was completed).

The taxpayer rented other premises to live in from 1997 to 2002.

The taxpayer lived in the new dwelling for more than three months before it was sold.

Reasons for Decision

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 land that is adjacent to the dwelling.

Generally, if a taxpayer demolishes an existing dwelling on land they already own and builds a new dwelling, no exemption is available until that new dwelling actually becomes the taxpayer's main residence.

However, section 118-150 of the ITAA 1997 allows a taxpayer to choose for the main residence exemption to apply to land while a new dwelling is being constructed for the shorter of four years or the period from when the original dwelling was last occupied: subsection 118-150(5) of the ITAA 1997.

The taxpayer can only make this choice if the new dwelling becomes their 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.

If more than four years elapses between the time the taxpayer last occupied the original dwelling and when the new dwelling becomes their main residence the approach taken in ATOID 2003/232 is not relevant. An 'unbroken period of occupancy of the property as a main residence' as contemplated in that ATOID cannot be established.

If the taxpayer chooses for section 118-150 of the ITAA 1997 to apply, an exemption will be available from June 1998 (i.e., four years before June 2002 when the new dwelling became the taxpayer's main residence). No exemption is available from the start of the ownership period to the time when the original dwelling was vacated, even though the original dwelling was the taxpayer's main residence throughout that time.

If the taxpayer does not choose for section 118-150 of the ITAA 1997 to apply, an exemption will only be available from the time that the new dwelling becomes the taxpayer's main residence.

Date of decision: 5 April 2003

Year of income:Year ended 30 June 2003

Legislative references:
Income Tax Assessment Act 1997
   Subdivision 118-B
   section 118-150
   subsection 118-150(3)
   subsection 118-150(5)

Related ATO Interpretative Decisions
ATO ID 2003/232

Keywords
Capital gains tax
CGT assets
CGT exemptions
CGT main residence exemption

Siebel/TDMS reference number: 3519940; 1-B0RD4ZC

Business line: Small Business/Individual Taxpayers

Date of publication: 16 May 2003

ISSN: 1445-2782

ATO ID 2003/322 (Withdrawn) history   Top  
   Date   Version 
    5 April 2003   Original statement   
 You are here ®  21 July 2017   Withdrawn   


 


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