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Edited version of your written advice
Authorisation Number: 1051334937315
Date of advice: 6 March 2018
Ruling
Subject: Main residence exemption
Question
Are you entitled to a CGT exemption on the sale of land after the main residence has been demolished?
Answer
No.
This ruling applies for the following period(s)
Year ending 30 June 2018
The scheme commences on
1 July 2017
Relevant facts and circumstances
You and then partner purchased a property in 2013 and lived there continuously as your principal place of residence (PPR).
The property comprised two blocks of land with separate titles, on which were constructed a double brick residence and a swimming pool.
In mid-2016 you and your partner decided to replace the house with a new more modern residence and in March 2017 you entered into a contract to construct a new residence on the property.
You and your partner moved out of the existing house into temporary rented accommodation and contracted to have the existing house demolished to make way for the new building. The demolition was completed in or about July 2017.
While the demolition was in progress your personal circumstances changed and the contract to have a new house built was cancelled.
To satisfy a court order the property was sold as vacant land.
You then purchased a new property late in 2017 as your permanent PPR.
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
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.
Although the main residence exemption can apply to vacant land after a dwelling that is your main residence is accidently destroyed, voluntary demolishing your home is not considered to be accidentally destroyed.
Therefore, you are not entitled to the main residence exemption on the sale of your property as no dwelling existed at the time of disposal of the land.