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Edited version of private ruling

Authorisation Number: 1011509877179

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Ruling

Subject: CGT- pre CGT asset

Is a capital gain or capital loss disregarded on the sale of the vacant land acquired before 20 September 1985?

Yes.

Is a capital gain or capital loss disregarded if you gift vacant land that was acquired before 20 September 1985?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You purchased a property consisting of your family home and surrounding land before 20 September 1985. The land is less than 2 hectares.

You have advised that you never rented this home out and have lived in the property for over fifty years.

You intend to demolish your existing family home and subdivide the land into three blocks.

You will build a new family home on one block, sell one block and give one block away.

You will be living in a rental accommodation while the new home is being constructed.

You will make the choice to treat the new dwelling as your main residence from the date of acquisition of the new dwelling until you move into the dwelling.

You will then reside in this property and treat is as your main residence indefinitely.

You may sell this property should you move into a nursing home in the future.

You have lodged an application for the sub-division in early 2010.

As soon as the application is approved and the titles are issued for the three blocks you will sell one of the blocks and gift one.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-20.

Income Tax Assessment Act 1997 Section 112-25.

Income Tax Assessment Act 1997 Section 112-30.

Income Tax Assessment Act 1997 Section 118-110.

Income Tax Assessment Act 1997 Section 118-150.

Reasons for decision

You only make a capital gain or capital loss if a capital gains tax (CGT) event happens to a CGT asset. Land and buildings are specifically listed under section 108-5 of the ITAA 1997 as CGT assets.

A capital gain or capital loss you make on the disposal of an asset is disregarded if you acquired the asset before 20 September 1985 (pre CGT). For CGT purposes, subdividing a property into two or more separate CGT assets does not result in a CGT event as there is no change of ownership. Therefore, the acquisition date of your ownership interest in the subdivided blocks will be the same as the date that you acquired the interest in the original property.

In your case, as you acquired the land before 20 September 1985, any capital gain or capital loss you make on the sale of the subdivided land or the gift of the subdivided land will be disregarded.

General Advice

The following information is provided as written guidance. A taxpayer who relies on guidance will remain liable for any tax shortfall if the guidance is incorrect or misleading and they make a mistake as a result (unless a time limit imposed by the law precludes the liability). However, they will be protected against the shortfall penalty and interest on the tax shortfall provided they relied on that guidance reasonably and in good faith.

Main Residence Exemption

Generally a capital gain from the disposal of your ownership interest in a dwelling that is your main residence can be disregarded.

To receive the full main residence exemption, the following must apply:

Constructing a dwelling on pre CGT land

Where a dwelling is constructed on pre-CGT land it will be deemed to be a separate asset for CGT purposes. The acquisition date of the dwelling is:

The date you enter into a contract for the construction of the dwelling, or

If there is no contract for its construction, the date the construction commences.

One of the requirements to obtain the main residence exemption is that the dwelling must have been your main residence for your entire ownership period. If the dwelling is your residence from the day you move into it until it is sold and if you make a choice under section 118-150 of the ITAA 1997 to treat the period between the acquisition of the dwelling and the date you commence to occupy the dwelling as main residence days the dwelling will be your main residence for the entire period of your ownership and any capital gain or loss made on the disposal of the dwelling will be disregarded.

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