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Land owned before CGT, but can a recent house built on it be CGT-free?

Naturally, a taxpayer will assume that when they build a house, that building will not qualify for CGT exemption until it becomes that taxpayer’s “main residence”.

There is however a section of the regulations that allows that taxpayer to extend the period of the main residence exemption so that this is initiated during the period when they are building or repairing the dwelling and not living in it. A recent Tax Determination (TD 2017/13) deals with this.

In part, this is enabled because the term “main residence” is not clinically defined in the legislation.

The ATO provides the following general guidance on the factors that may be relevant in working out whether a property is a taxpayer’s main residence:

  • the length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence
  • whether you and your family lives there
  • whether you have moved your personal belongings into the home
  • the address to which your mail is delivered
  • your address on the electoral roll
  • the connection of services (for example, phone, gas or electricity)
  • your intention in occupying the dwelling.

Generally, a mere intention to construct or occupy a dwelling as the taxpayer’s main residence – without actually doing so – is not sufficient to categorise the building as the taxpayer’s main residence.

The wiggle room with regard to the extension of the CGT-free period has to do with subsection s118-150(2), and a choice that can be made under this subsection. This can allow the taxpayer to treat the property as their main residence for CGT purposes prior to moving in, while the construction or renovation work is still being completed.

 

Harper Group Pty Ltd Chartered Accountants Frankston Ph 9770 1547

Disclaimer: All information provided in this article is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.

Michael Sinclair