Prima-facie, a partial CGT main residence exemption can apply to a knock-down rebuild of a person’s home.
This is because in determining if the dwelling qualified as a main residence throughout its “ownership period”, this period of ownership begins when the interest in the land is first acquired (per s 118-125 of ITAA 1997). And this must occur sometime before the new home is built.
However, if the conditions for the “building concession” in s 118-150 are met (and it is chosen) and the new home is built within 4 years of vacating the original home or such further time as the Commissioner allows), then a full exemption is available on the sale of the new home.
This is because the effect of s 118-150(2) (as modified by s 118-150(5) in this case of a knockdown rebuild) means that you only treat the new dwelling that you are building as your main residence from the time you vacated the original home (and not from the time you first acquired an interest in the land).
Accordingly, if you build the new home within 4 years of vacating the original home (or such further time allowed) and the building concession is chosen, then the new home will not be subject to a partial CGT main residence exemption for the period before the old home was vacated. (See also ATO ID 2003/232.)
