Edited version of private ruling

Authorisation Number: 1011660635446

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Ruling

Subject: Capital gains tax -Main residence

Is a capital gain or capital loss made on the sale of vacant land, after demolition of a dwelling which was your main residence, disregarded?

No

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You and your spouse purchased a property as joint tenants after September 1985.

The property was situated on less than 2 hectares of land.

You and your spouse lived in the property as your main residence and considered either renovating or demolishing the existing dwelling.

You decided to demolish the existing dwelling as the house was in poor condition to live and raise a family in.

You demolished the house and your intention was to construct a new dwelling.

You did not receive any proceeds from the demolition.

You moved into rental accommodation while considering your options taking into consideration your family and working arrangements.

A property consultant suggested you build two houses on your block of land, one to live in and the other to sell.

You submitted plans to the council for approval for two dwellings to be constructed.

You had difficulties in finding a builder and decided to sell the land with the plans.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 118-B.

Reasons for decision

Capital gains tax (CGT) is the tax you pay on any capital gain that you include in your annual income tax return.

A capital gain or capital loss an individual makes from a CGT event that happens to a dwelling is disregarded under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) if the dwelling was the taxpayer's main residence throughout the period it was owned.

The main residence exemption may be extended to a block of land up to 2 hectares for a period of four years provided that a dwelling is ultimately constructed on the land; you move into the dwelling as soon as practicable after the work is finished; and it continues to be your main residence for at least 3 months.

Where you demolish a dwelling and do not build a replacement dwelling on the land but instead sell the property as vacant land, the main residence exemption is lost as the exemption attaches to the dwelling and not the land.

Taxation Determination TD 51 states that a mere intention to construct a dwelling or to occupy a dwelling as a sole or principle residence, but without actually doing so, is insufficient to obtain the exemption.

In your case, as you did not construct a dwelling on your land and occupy it, you are not entitled to the main residence exemption as you did not construct a dwelling on your land and occupy it.  

The Commissioner of Taxation has no discretion to disregard any capital gain or capital loss you made upon the sale of your block of land. 

Therefore, you are not entitled to the main residence exemption upon the sale of your property as no dwelling existed at the time of disposal of the land.

Please refer to our website www.ato.gov.au for more information on how to calculate your capital gain.