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Edited version of private ruling
Authorisation Number: 1011729265446
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Ruling
Subject: Capital gains tax - disposal of house and land.
Question:
Are you eligible to the 50% reduction in CGT on the land and house?
Answer: Yes.
This ruling applies for the following periods:
Year ended 30 June 2011.
The scheme commences on:
1 July 2009
Relevant facts and circumstances
You and your partner purchased a block of land as an investment after 20 September 1985.
You submitted a development application for construction of a house.
The notice of determination regarding the approved development application was made.
You subsequently cleared the land.
Construction on the house began.
The house was constructed.
The house has not produced any income since its completion.
You will sell the property.
This house will not become your primary place of residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 115-5,
Income Tax Assessment Act 1997 115-10,
Income Tax Assessment Act 1997 115-15,
Income Tax Assessment Act 1997 115-25 and
Income Tax Assessment Act 1997 115-100.
Reasons for decision
A capital gain or capital loss may arise if a capital gains tax event (CGT) happens to a capital gains tax asset. The most common CGT event is CGT event A1. This occurs when ownership of a CGT asset is disposed of. The sale of the land and house would be considered to be a CGT event A1.
According to CGT rules, the land and building are treated as one asset. The building is treated as a capital improvement to the land.
In this case the land was purchased after 20 September 1985 and a building was constructed. For the purposes of CGT, the land and house will be one asset.
In certain circumstances, you may be eligible to reduce the amount of tax payable on a capital gain.
To be eligible for the discount on a capital gain you must:
· be an individual;
· have held the asset for longer than 12 months; and
· the CGT event happens after 11:45am ACT legal time on 21 September 1999.
Section 115-100 of the Income Tax Assessment Act 1997 states that the discount rate applicable to a capital gain made by an individual is 50%. As you purchased the land more than 12 months before the CGT event will happen and satisfy the other conditions for a discount capital gain, you are eligible for the 50% CGT discount on the capital gain made from the sale of the land and house.
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