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Q: I purchased a property in 2010, which was to be our principal place of residence. We spent much longer than expected trying to get building permits, visits to VCAT, etc. During this period I subsequently divorced. I then sold the property.
As we were renting our home at the time because the property that we purchased was uninhabitable, can I claim a principal residence exemption for the property? We never lived in it and have already been charged substantial land tax on the sale.
A: The ATO website section on ‘Is the dwelling your main residence’ is a good starting point for understanding the main residence exemption rules. If you have lived in the dwelling, even for one day, the principal residence exemption can be claimed as there is no statutory minimum time (subject to anti-tax avoidance rules).
Additional factors that are relevant in determining whether the property is your main residence include: Did you move your personal belongings into the home? Have you changed your mailing address and received mail at the address? Have you changed your address on the electoral role? Were services such as phone and energy connected and used?
The mere intention to occupy the property as your main residence without actually doing so is insufficient for claiming the principal residence exemption for the property, as was found in Couch v FCT 2009 AATA 41. In this case, the issue was whether the taxpayers were entitled to the main residence exemption where the property was not occupied at any time during ownership. The couple had intended to use the property as their PPOR, but employment circumstances stopped that. Consequently, they leased the property while owning it but never moved in. The ruling found that the mere intention was not sufficient under the main residence exemption provisions.
"The mere intention to occupy the property as your main residence without actually doing so is insufficient"
However, in certain circumstances, you can choose to treat the land, or in your case the uninhabitable property, as your main residence for up to four years before the dwelling becomes your main residence. For this to apply you must, in summary, build or repair a dwelling on the land. There are a number of conditions you must satisfy before you can claim the exemption. You must first finish building, repairing or renovating the dwelling and then move into the dwelling as soon as is practicable after it is finished and continue to use it as your main residence for at least three months after it becomes your main residence.
The issue of land tax in Victoria is very similar. To get the principal residence land tax exemption you must use and occupy that land as your PP0R. As per the State Office of Revenue Victoria website, land cannot be regarded as your PP0R unless there is a building affixed to the land that is designed and constructed primarily for residential purposes and is lawfully used as a place of residence. For newly built homes, this means the certificate of occupancy must have been issued.
Therefore, based on the information you have supplied, you cannot claim the principal residence exemption as you did not move in and occupy the property as your principal residence. The date of sale for capital gains tax (CGT) purposes is the contract date, not the settlement date, and if you held the property for over 12 months then a 50% general CGT discount would apply.
- The intention to live in a property (without actually living in it) is not enough to claim a CGT exemption.
- Land cannot be regarded as your PP0R unless there is a building affixed to the land.
- The date of sale for CGT is the contract date, not the settlement date.
Ken Raiss is director of
Metropole Wealth Advisory
While due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
