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Ruling
Subject: Capital gains tax
Question and Answer
Does a capital gain or capital loss arise on the demolition of a dwelling if no capital proceeds are received?
No
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on:
1 July 2011
Relevant facts and circumstances
You and your sibling own a 50% share in a property.
The property was purchased in the 2007-08 income year and has been rented by tenants.
A land agent valued the property at $X in the 2011-12 income year.
You and your sibling have had plans drawn up whereby the house located on the property will be demolished and a new house built which you both will use as your main residence.
You will not receive any money or any other asset as a result of the demolition.
The demolition will cost approximately $Y.
You and your sibling plan to build the new house in the 2012-13 income year.
You do not have any future plan to sell the new house.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-20.
Income Tax Assessment Act 1997 Section 108-55.
Income Tax Assessment Act 1997 Section 112-30.
Reasons for decision
A capital gain or capital loss can only arise if a capital gains tax (CGT) event happens to a CGT asset. Land and buildings are CGT assets. An interest in an asset is also treated as a CGT asset. In your case you have a 50% interest in the property in question. This is a CGT asset.
A capital gain or capital loss is disregarded if you acquire an asset before 20 September 1985.
The demolition of a dwelling is a CGT event. CGT event C1 happens if a CGT asset a person owns is lost or destroyed. CGT event C1 can happen on the voluntary destruction of an asset, for example where the person demolishes a building in the course of redeveloping a property.
Therefore, CGT event C1 will occur on the demolition of your dwelling.
You do not make a capital gain or capital loss from the demolition if you do not receive any capital proceeds as the cost base and reduced cost base will also be nil under the apportionment rules.
In your case, as you will not receive any capital proceeds on demolition of the dwelling, you will not make any capital gain or loss from the demolition. Thus there is no need to declare any capital gain or loss in the income year in which the demolition takes place. Accordingly a valuation of the property before and after demolition is not necessary.