Ask Ban Tacs Question
I would like to know whether I can retain the principal place of residency exemption on the following
I brought a house which we live in in 2007. I want to now want to demolish the house And build 2 townhouses. We will need to rent while the houses are being built. On completion the 2 will be sub divided with same ownership as before. I plan to live in the back one for 3 months and sell it as my principal place of residency and then sell it…. And settle within 6 months.
I then plan to live in the front one as my principal place of residency. We will live here for at least 12 months.
Are both front and back townhouses tax free in this instance as I can get the principal place of
residency exemption on both?
Thanks
Answer
No you can’t get the main residence exemption for both properties in fact the law states that when you demolish a house the main residence exemption is lost on it forever. Fortunately the ATO have allowed a concession in ID 2003/232 http://law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~gain~basic~exact:::AND~assets~basic~exact&target=JA&style=html&sdocid=AID/AID2003322/00001&recStart=61&PiT=99991231235958&recnum=74&tot=216&pn=ALL:::JA which says that providing you move into the new property as soon as practical after the building is completed and live there for at least 3 months you can build a bridge to cover both the old and new property with your main residence exemption.
You can only cover one property at a time with your main residence exemption so obviously the other property will not qualify in any way under ID 2003/232. It will be considered to be built on vacant land you purchased in 2007. The cost base, assuming both halves are similar in value, will be half the original purchase price, half the demolition costs, half the construction costs, half the subdivision costs and half of all the costs of ownership since 2007 (section 110-25(4)). You will not be able to start to cover the second new property with your main residence exemption until you move into it though there is a limited concession that will allow you to cover it for the 6 months prior to the sale of the new property you first live in (section 118-140).
The only way you would be entitled to cover both properties with your main residence exemption would be to spread yourselves over the both of them for 3 months at the same time, when they are finished and sell them both to the same person at the same time.
