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Edited version of your private ruling
Authorisation Number: 1012516271739
Subject: Capital gains tax - main residence - demolition of dwelling - disposal of vacant land
Question:
Is the capital gain made on the sale of vacant land, after demolition of a dwelling which was your main residence, disregarded?
Answer:
No.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts:
You purchased a dwelling after 20 September 1985 which was built over two adjoining blocks (block A and block B) and used the dwelling as your main residence.
After a number of years, you demolished the dwelling, with plans to build a new dwelling on Block A.
You were intending to finance the construction of the dwelling by accessing some investments held in an income fund.
You were notified by your investment fund that they were unable to provide the return of capital to you.
You sold block B after a number of years to repay some of your debts.
You had insufficient funds to proceed with the construction of the new dwelling on block A and subsequently sold the block in the relevant income year.
You have provided a number of documents which form part of this private ruling.
You have made a capital gain as a result of the sale.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-120
Income Tax Assessment Act 1997 Section 118-150
Income Tax Assessment Act 1997 Subsection 118-150(3)
Income Tax Assessment Act 1997 Section 118-160
Reasons for Decision
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 individuals main residence for the entire period you owned it.
The exemption extends to any capital gain or capital loss from land adjacent to a dwelling (to a maximum of two hectares) if the land was used primarily for private or domestic purposes in association with the dwelling (section 118-120 of the ITAA 1997).
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.
Therefore, you are not entitled to the main residence exemption upon the sale of your property as no dwelling will exist at the time of disposal of the land.
Additional Information:
1. There is only one situation where the main residence exemption can be chosen for a CGT event that happens to vacant land. This is where a CGT event happens to vacant land after a dwelling that was your main residence is accidentally destroyed. In your case, the dwelling was not accidentally destroyed therefore you are not entitled to the exemption for vacant land.