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Edited version of your written advice
Authorisation Number: 1013069142324
Date of advice: 10 August 2016
Ruling
Subject: Capital gains tax exemption
Question 1
Are you entitled to a CGT exemption on the sale of land after the main residence from a deceased estate has been demolished?
Answer
No.
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The deceased died in 20XX.
The deceased purchased a pre CGT property (the property), which was the main residence of the deceased.
The deceased's relative (the relative) was granted the right to live in the property for the rest of their life, subject to meeting costs for rates and charges, as per the deceased's will.
The deceased's children were appointed executor and trustee (the trustees).
The property had significant termite damage, the extent of which could not be safely viewed due to being lined with asbestos fibro. The trustees decided the only way forward was to demolish the house.
The relative relocated and the property demolished 20XX.
The trustees decided to sell the land and purchase another property for the relative to live in.
There were no proceeds from the demolished property.
The land the demolished dwelling was on was over two property titles.
The first title block was sold in 20XX.
A contract for the second block is due to settle 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 118-110(1)
Income Tax Assessment Act 1997 Section 118-115
Income Tax Assessment Act 1997 Section 118-160
Income Tax Assessment Act 1997 Subsection 118-195(1)
Reasons for decision
Subsection 118-110(1) of the Income Tax Assessment Act 1997 ITAA 1997 provides that a capital gain or capital loss made by an individual from a capital gains tax (CGT) event that happens in relation to a dwelling is disregarded if the dwelling was their main residence throughout their ownership period.
Subsection 118-195(1) of the (ITAA 1997) allows the trustee of a deceased estate to disregard any capital gain or loss made from a CGT event that happens in relation to a dwelling that a deceased person acquired before 20 September 1985 if:
(a) the trustee's ownership interest in the dwelling ends within 2 years of the deceased's death, or
(b) from the deceased's death until the trustee's ownership interest ends, the dwelling was the main residence of one or more of the following persons
(i) the spouse of the deceased immediately before death; or
(ii) an individual who had a right to occupy the dwelling under the deceased's will; or
(iii) an individual who brought about the CGT event and the ownership interest in the dwelling passed to that individual as beneficiary.
The meaning of dwelling is defined in Section 118-115 of the ITAA 1997 as any building, or part of a building, that consists mainly of residential accommodation and the land it is built on.
The main residence exemption can be chosen for a CGT event that happens to vacant land after a dwelling that is your main residence is accidently destroyed, per section 118-160 of the ITAA 1997.
The Commissioner's view of accidently destroyed includes events such as flood and cyclone, as determined in ATO Interpretative Decision 2003/213 Capital gains tax: main residence exemption - accidental destruction of dwelling - sale of vacant land, and ATO Interpretative Decision 2003/214 Capital gains tax: main residence - absences - accidental destruction of dwelling - sale of vacant land.
Application to your circumstances
There was no dwelling on the land when the land was sold for the main residence exemption to apply to, as per the meaning of dwelling in Section 118-115 of the ITAA 1997.
Although the main residence exemption can apply to vacant land after a dwelling that is your main residence is accidently destroyed; termite damage that occurred to your dwelling is not considered to be accidentally destroyed.
As there is no dwelling on the vacant land at the time of disposal, it is the Commissioner's view that the sale of the vacant land is not exempt from Capital gains tax.
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