| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1011828239482
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
Question and answer:
Are you entitled to disregard any capital gain or loss made on the disposal of one half of your interest in vacant land?
No.
This ruling applies for the following period:
1 July 2011 to 20 June 2012.
The scheme commenced on:
1 July 2011.
Relevant facts:
Since 1992, you have been the owner of a residential property (the property).
You have not owned any other real estate since becoming the owner of the property.
The property is on less than 2 hectares of land.
You have never used any part of the property to produce assessable income.
You occupied the property as your main residence.
You moved out of the property and voluntarily demolished the existing dwelling.
You intend to transfer a portion of your ownership interest in the vacant land to other parties.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 102-5.
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-5.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 108-5.
Income Tax Assessment Act 1997 Subdivision 118-B
Income Tax Assessment Act 1997 Section 118-110.
Income Tax Assessment Act 1997 Section 118-115.
Income Tax Assessment Act 1997 Section 118-120.
Income Tax Assessment Act 1997 Section 118-160.
Reasons for decision
Capital gains tax (CGT) - general
Real estate is a CGT asset.
If you own a CGT asset and a change of ownership occurs from you to another person or entity, you are considered to have disposed of the asset.
When you dispose of a CGT asset, CGT event A1 happens. In the case of real estate, the time of the event is when the contract for the disposal is entered into. If there is no contract, the event occurs when the change of ownership takes place.
When a CGT event happens to a CGT asset you own, you make a capital gain or loss at the time of the event, depending on whether the capital proceeds from the CGT event are more or less than the cost base/reduced cost base of the CGT asset.
In some cases, an exemption may apply that allows a taxpayer to reduce, or disregard (and therefore not include in their assessable income), any gain or loss made as a result of a CGT event. Where applicable, such exemptions are provided for by the tax law.
The Commissioner has no authority to allow a taxpayer to reduce or disregard any assessable gain outside of the exemptions that are provided for by the tax law.
The main residence exemption and vacant land
The main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) applies to a capital gain or loss from a CGT event that happens to a dwelling (subsection 118-110(1) of the ITAA 1997).
Provided certain conditions are met, the main residence exemption allows taxpayers to disregard any capital gain or loss made from the disposal of a dwelling that was their main residence.
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 a CGT event happens to the vacant land after a dwelling that is your main residence is accidentally destroyed (section 118-160 of the ITAA 1997).
In your case, although the dwelling on the land was your main residence, the dwelling was not accidentally destroyed. Rather, the dwelling was demolished voluntarily. Accordingly, you are not entitled to apply the main residence exemption to disregard any capital gain or loss you make from the disposal of any portion of your ownership interest in the vacant land.
Conclusion
You cannot apply the main residence exemption to the sale of the vacant land.
Your assessable income will include any net capital gain you make as a result of the disposal of any portion of your ownership interest in the property.
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).
