Edited version of private ruling

Authorisation Number: 1011706146288

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: Disposal of a vacant block of land

Question

Is the capital gain made on the disposal of your vacant block of land disregarded?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 June 2009

Relevant facts and circumstances

You and your spouse reside at a dwelling in the State of your choice.

You and your spouse purchased a vacant block of land A after 20 September 1985 with the intention of building a house and relocating as your child would be attending the local High School.

Following settlement on the vacant block of land A, you and your spouse obtained quotes from builders for the construction of a dwelling and found the quotes exceeded your affordability expectations due to the steep slope of the block.

You and your spouse sold block A and made a capital gain, located another vacant block of land that would allow you to construct a dwelling within your budget.

You and your spouse have purchased vacant block of land B with the intention of constructing a dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997- Section 104-10,

Income Tax Assessment Act 1997- Section 102-20,

Income Tax Assessment Act 1997 -Section 118-110,

Income Tax Assessment Act 1997- Section 118-150,

Income Tax Assessment Act 1997- paragraph 115-10(a),

Income Tax Assessment Act 1997- Section 115-25,

Income Tax Assessment Act 1997- Section 115-15 and

Income Tax Assessment Act 1997- Section 115-100.

Reasons for decision

A capital gain or capital loss may arise if a capital gains tax event (CGT) happens to a capital gains tax asset. The most common CGT event is CGT event A1. This occurs when ownership of a CGT asset is disposed of. The sale of the vacant block of land would be considered to be a CGT event A1.

Under certain circumstances, you disregard a capital gain or capital loss that is made on the sale of an asset. You ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence. The main residence exemption can also be applied to land owned by a taxpayer but only if the taxpayer builds a dwelling on the land or repairs, renovates or finishes building a dwelling on the land. The intention to construct or occupy a dwelling as a principal place of residence without actually doing so is insufficient grounds to qualify for main residence exemption.

Except for the disposal of vacant land after the accidental destruction of a main residence, there is no exemption that allows for a capital gain or capital loss to be disregarded upon disposal of vacant land. There is no discretion for the Commissioner to allow vacant land to be treated as a main residence in any other circumstance.

In your case, the mere intention to construct a dwelling on the vacant block of land and to then occupy the dwelling as your main residence, without actually doing so, is insufficient to obtain the exemption. Therefore any capital gain realised on disposal of the vacant block of land is considered to be assessable income and must be reported in your income tax return in the year the CGT asset was disposed of.

Whilst we appreciate the change in your circumstances and acknowledge your intension to construct a dwelling on the block of land which would become your main residence, the fact remains that you did not do so. This means that a full main residence exemption to the payment of capital gains tax is not available to you upon the sale of the vacant block of land.

Note:

In certain circumstances, you may be eligible to reduce the amount of tax payable on a capital gain. The CGT discount allows individuals to pay tax on only half of any capital gain they make on assets owned for at least 12 months.

To meet the eligibility criteria for the discount you must:

· be an individual

· have held the asset for longer than 12 months

· have disposed of the asset after 11:45am ACT legal time on

· 21 September 1999; and

· did not choose to use the indexation method.

Further information on your taxation obligation relating to capital gains tax may be found at our website.