Question My husband and I purchased a block of land with an existing dwelling on it, with the genuine intention to demolish the existing house and build a new dwelling for our retirement.

However, it took about two (2) years to get council approval for the development and in the meantime, we found and purchased another property we liked. Therefore, we disposed of the original property and made a gain. We do not own any other property and lived in a rental property during the time we were waiting on council's approval.

Although we never lived in the house, it has always been our intention to use that property as our main residence. Can we treat this property as our "main residence" and disregard the capital gain? The house has never been used to generate investment income, as the house was not in a liveable condition.

Answer

Unfortunately, it is not generally possible to apply the main residence exemption to the sale of a property unless it contains a dwelling that has actually been established as the client's main residence.

The mere intention to occupy a dwelling as a main residence but without actually doing so is insufficient to obtain the main residence exemption.