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ATO Interpretative Decision

ATO ID 2003/466 (Withdrawn)

Income Tax
Capital gains tax: main residence exemption - demolition and reconstruction of dwelling not main residence for entire ownership period

Attention This ATO ID is withdrawn.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Status of this decision: Decision withdrawn 21 July 2017.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is the taxpayer entitled to a full main residence exemption under Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of a dwelling built to replace their previous main residence that was demolished if the previous residence was not their main residence for the whole time they owned it?

Decision

No. The taxpayer is only entitled to a partial main residence exemption.

If the taxpayer makes a valid choice under section 118-150 of the ITAA 1997, the main residence exemption will apply from the last time the original dwelling became the taxpayer's main residence until the sale of the new dwelling.

Facts

The taxpayer purchased a dwelling in February 1987 which they rented out until December 1994.

The taxpayer commenced to reside in the dwelling in December 1994. It was their main residence from that date until January 1999.

The taxpayer again rented out the dwelling from January 1999 until January 2001. The taxpayer was not entitled to treat the dwelling as their main residence during this period because they treated another dwelling as their main residence.

The dwelling again became the taxpayer's main residence in January 2001. It continued to be their main residence until they demolished it in January 2002.

A new dwelling was constructed which became the taxpayer's main residence in November 2002 (as soon as practicable after completion).

The taxpayer continued to live in the new dwelling until it was sold in March 2003.

Reasons for Decision

The main residence exemption provisions in Subdivision 118-B of the ITAA 1997 disregard any capital gain or capital loss that a taxpayer makes on the disposal of a dwelling that is their main residence. The exemption also extends to 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 the main residence exemption until the 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. Where an original dwelling on the land is demolished or destroyed and a new dwelling is constructed, the exemption is for the shorter of four years before the new dwelling becomes their main residence or the period from when the original dwelling ceased to be occupied (subsections 118-150(4) and 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 at least three months (subsection 118-150(3) of the ITAA 1997).

The main residence usage of an original dwelling which is demolished or destroyed, will not normally count towards an exemption for the new dwelling and land.

However, as stated in ATO ID 2003/232, the two dwellings may be treated as one and the main residence usage of the original dwelling will count towards the main residence exemption for the new dwelling and land if:

·
 the taxpayer makes a valid choice under section 118-150 of the ITAA 1997 to treat the land on which the new dwelling is constructed as their main residence from the time they last occupied the demolished dwelling; and
·
 the other requirements for the main residence exemption in Subdivision 118-B of the ITAA 1997 are met.

The effect of making a choice under section 118-150 of the ITAA 1997 in this case will be that there is an unbroken period of main residence occupancy on the land from the last time the original dwelling became the taxpayer's main residence in January 2001 until the new dwelling was sold in March 2003. Therefore, the main residence exemption is available for this period.

No exemption is available from December 1994 to January 1999 even though the original dwelling was the taxpayer's main residence during this period. The facts of this case can be distinguished from those in ATO ID 2003/232. The original dwelling in ATO ID 2003/232 was the taxpayer's main residence for their entire ownership period and, as a result, the taxpayer was entitled to a full main residence exemption. In this case, the original dwelling was not the taxpayer's main residence for their entire ownership period. The unbroken main residence occupancy period can only be established from January 2001 until March 2003.

Accordingly, the taxpayer is only entitled to a partial main residence exemption.

Date of decision: 19 May 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(4)
   subsection 118-150(5)

Related ATO Interpretative Decisions
ATO ID 2003/232

Keywords
Capital gains tax
CGT exemptions
CGT main residence exemption

Siebel/TDMS reference number: 3570783; 1-7O53K8B; 1-B0RD55N

Business line: Small Business/Individual Taxpayers

Date of publication: 20 June 2003
Date reviewed: 27 January 2016

ISSN: 1445-2782

ATO ID 2003/466 (Withdrawn) history   Top  
   Date   Version 
   19 May 2003   Original statement   
 You are here ®  21 July 2017   Withdrawn   


 


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