ATO Interpretative Decision
ATO ID 2003/212
Income Tax
Capital gains tax: main residence exemption - accidental destruction of dwelling used for income producing purposes - sale of vacant landFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Can section 118-160 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to exempt a sale of vacant land following the accidental destruction of a dwelling that was never your main residence?
Decision
No. Section 118-160 of the ITAA 1997, which enables you to choose to apply the main residence exemption to a sale of vacant land, requires that a dwelling that is your main residence be accidentally destroyed.
Facts
An individual acquires land and a dwelling after 19 September, 1985.
The dwelling is used as a rental property throughout the time that it is owned.
The dwelling is destroyed in a cyclone.
The vacant land is sold.
Reasons for Decision
The main residence exemption in Subdivision 118-B of the ITAA 1997 applies to a capital gain or loss from a CGT event that happens to a dwelling that is your main residence (subsection 118-110(1) of the ITAA 1997).
The exemption extends to land that is adjacent to a dwelling (to a maximum area of two hectares including the land on which the dwelling is built) if the land is used primarily for private or domestic purposes in association with the dwelling (section 118-120 of the ITAA 1997). However the exemption does not apply to land if separate CGT events happen to the land and the dwelling (section 118-165 of the ITAA 1997).
There is only one situation where the main residence exemption can be chosen for a CGT event that happens to vacant land. This is where the CGT event happens to the land after a dwelling that is your main residence is accidentally destroyed (section 118-160 of the ITAA 1997).
You cannot choose for section 118-160 of the ITAA 1997 to apply to the sale of vacant land if, at the time the dwelling was accidentally destroyed, it was not your main residence.
Accordingly, no main residence exemption will be available under Subdivision 118-B of the ITAA 1997 for any capital gain or loss arising from the sale of the vacant land in this case.
Date of decision: 19 March 2003Year of income: Year Ending 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Subdivision 118-B
subsection 118-110(1)
section 118-120
section 118-160
section 118-165
ATO ID 2003/213
ATO ID 2003/214
Keywords
Capital gains tax
CGT main residence exemption
Dwellings
Main residence first used to produce income rule
CGT exemptions
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 19 March 2003 | Original statement |
| 26 February 2016 | Updated statement | |
| 5 May 2017 | Archived |