Tax Tip 107: CGT exemption not stay in newly constructed house for 3 months

Discussion in 'Accounting & Tax' started by Terry_w, 4th Apr, 2016.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    9th Jun, 2006
    Australia wide
    Tax Tip: CGT exemption when not staying in a newly constructed house for 3 months

    In a recent tip I explained how the main residence exemption can apply to vacant land and be backdated up to 4 years prior when a house is constructed and lived in for at least 3 months.
    Tax Tip 99: Vacant Land and the CGT Exemption

    The ATO accepts (in ATO ID 2006/189) that a person can reside in the house, recently constructed on vacant land, for less than 3 months and then apply the 6 year absence rule to exceed the 3 month period.

    For the 6 year rule see: Tax Tip 23: The 6 year Absent from Main Residence Rule

    The example the ATO gives:

    With the ATO accepting the house as the main residence from the date the land was purchased, even though they did not live in the house for the full 3 months.

    Also this is further evidence that there is no minimum requirement to live in a property for a certain period before moving out and applying the 6 year rule. I have heard accountants suggest a minimum of 3 or 6 or even 12 months being needed, but there is no legal basis for this.

    ATO ID 2006/189 Income tax Capital gains tax: main residence - 3 month period - extension of actual period by absence rule
    ATO ID 2006/189 - Capital gains tax: main residence - 3 month period - extension of actual period by absence rule
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

    18th Jun, 2015
    This is a complex exemption and one that needs tax advice. The extension of the 2.5 months to pass the three months works where the property was retained. Selling may pose a concern however and render the land and house liable to tax (two CGT assets)
    Terry_w likes this.