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Ruling

Subject: Capital gains tax - main residence

Question

Will capital gains tax apply to the sale of the block of land?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2008.

The scheme commenced on

1 July 2006.

Relevant facts

You purchased a block of land in 2006.

You purchased the land jointly with a friend.

You immediately put a preliminary contract in to get a house built on the land.

You intended to live in the house with your friend and family.

You received an estimate that the house would be completed in six months and habitable in 2007.

While the house was being constructed you lived in a rental property.

It became evident that the construction of the house would take longer than the original six months.

There were various delays in the construction of the house.

You were informed that construction would not begin until early 2008.

Due to the delays in constructing the house, you decided to sell the land and buy an already constructed house.

You sold the land in 2008.

You purchased an already constructed house and moved in immediately.

Relevant legislative provisions

Income Tax Assessment Act 1997 - Section 102-20

Income Tax Assessment Act 1997 - Section 104-10

Income Tax Assessment Act 1997 - Section 118-110

Income Tax Assessment Act 1997 - Section 118-150

Reasons for decision

Capital gains tax:

Capital gains tax (CGT) is the tax you pay on any capital gain you make.

You make a capital gain or capital loss if a CGT event happens to a CGT asset. The gain or loss is made at the time of the event.

You will make a capital gain if the capital proceeds from the sale are more than the cost base of the asset.

There is no separate tax on capital gains, it is merely a component of your income tax. A capital gain is included in your income tax return and forms part of your assessable income. Your assessable income is then taxed at your marginal tax rate.

The sale of a block of land constitutes CGT event A1.

Main residence:

Generally, you disregard any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period.

The main residence exemption may be extended to a block of land, for a period of four years, provided that a dwelling is ultimately constructed and you move into the dwelling as soon as practicable.

In this case you acquired a block of land with the intension of constructing a dwelling that was to be your main residence. Due to various delays in the construction of the dwelling, you sold the land and purchased an already constructed property. As construction of the dwelling was not completed and consequently you did not move into the property as soon as practicable, the main residence exemption will not apply to the block of land. Therefore, CGT will apply to the sale of the block of land.

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