Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private ruling

Authorisation Number: 1011820272750

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Capital gains tax - main residence

Question

Does the main residence exemption apply to the vacant land prior to building your dwelling?

Answers

Yes.

This ruling applies for the following period

Year ended 30 June 2011.

Year ended 30 June 2012.

The scheme commenced on

1 July 2008.

Relevant facts

You acquired vacant land.

You are the sole owner of the title.

You chose the land as your main residence.

You constructed your residential home on the dwelling as an owner builder.

You commenced living at the dwelling.

The dwelling has not been used to produce assessable income until 2010.

The dwelling does not exceed two hectares in size.

You will sell the dwelling to a third party sometime during 2011 to 2012.

Your previous spouse will not be electing the dwelling as her main residence.

Your previous spouse did not own another dwelling (solely or jointly) that she chose as her main residence between the date of purchase to the date of sale.

You are currently living in temporary accommodation.

The dwelling has been used as an income producing asset since 2010.

You have elected to continue to treat the dwelling as your main residence.

Your new spouse does not own another dwelling (solely or jointly) that is her main residence for capital gains tax (CGT) purposes.

There has not been a change on the title or ownership of the dwelling since you purchased it.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-135
Income Tax Assessment Act 1997 Section 118-145
Income Tax Assessment Act 1997 Section 118-150
Taxation Administration Act 1953 subsection Sch1-359-10(3)

Reasons for decision

Capital gains tax

Capital gains tax (CGT) is not a separate tax. Any assessable capital gain is included in your tax return, along with your other income, and taxed at your marginal tax rate.

You make a capital gain or a capital loss if a CGT event happens to your ownership interest in a CGT asset. An assessable capital gain will occur where the capital proceeds are greater than the cost base. A capital loss will occur where the reduced cost base is greater than the capital proceeds.

The most common event, CGT event A1, happens if you dispose of you ownership interest to someone else. Certain exemptions operate to disregard capital gains or losses. If the asset you disposed of is your home, you may be entitled to a main residence exemption.

Main residence exemption

You can disregard a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence if:

For an established dwelling, there is no restriction on the length of time that you live in the dwelling before it is considered to be your main residence.

Constructing a dwelling on land you already own

Section 118-150 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that if you build a dwelling on land you already own, the land does not qualify for an exemption until the dwelling becomes your main residence. However, you can choose to treat the land as your main residence for up to four years before the dwelling becomes your main residence in certain circumstances.

There are conditions that you must satisfy before you can claim the exemption. You must first finish building and then:

The land, including the dwelling that is built, is exempt for the shorter of the following periods:

In your case, you chose the dwelling as your main residence from the time you acquired the vacant land, you have not treated any other dwelling as your main residence for the ownership period, you constructed a dwelling within four years of acquiring the land, moved in as soon as practicable and you continued to treat the dwelling as your main residence. During the time you are living in temporary accommodation, you have elected to continue to treat the dwelling as your main residence. Therefore you can disregard any capital gain or capital loss made on the sale of the dwelling.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).