Tax Tip 208: Main Residence CGT Exemption and Death During Construction

Under s118-150 ITAA97 a person can claim the main residence CGT exemption for up to 4 years prior to occupation of a house being constructed once it is completed – if they live there for at least 3 months and do not claim another property during this time.

See

Tax Tip 99: Vacant Land and the CGT Exemption Tax Tip 99: Vacant Land and the CGT Exemption

and

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


What would happen if the owner died during construction and could not live there for 3 months?


Luckily there is a concession which covers this scenario and can be found at s 118-155 ITAA97[1]. The surviving joint owner of a joint tenancy or the LPR of the estate can choose to apply the main residence rule for the shorter of 4 years before the death or when the individual acquired the land.


Example

Homer and Marg are renting and buy land with the intention to build on it. The land has skyrocketed in price, but after 3 years they still have not done anything with it. They then realise time is running out so enter into a contract with a builder. Homer suddenly dies from radiation poisoning. If Marg is a joint tenant owner she will become sole owner bypassing the will. This legislation allows Marg to claim the main residence exemption on the whole property from the date it was acquired as long as she moves in within the 4 year period from purchase contracts.

If Barney was Homer’s executor and they held it as tenants in common it could still be CGT exempt as long as it is completed in time. In this case Barney doesn’t need to move into the property for the exemption to apply but it can be passed via Homer’s will as if it was Homer’s main residence for the 4 years prior to his death.


[1] INCOME TAX ASSESSMENT ACT 1997 - SECT 118.155 Where individual referred to in section 118-150 dies