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Edited version of your written advice
Authorisation Number: 1051487167949
Date of advice: 23 February 2019
Ruling
Subject: CGT – main residence - disposal – land
Question
Are you entitled to apply the main residence exemption upon the sale of the vacant block of land?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
You acquired a vacant block of land with your spouse on XX March 20XX.
Your intention was to build a house on the land and make it your home.
Due to financial constraints and the relationship breakdown with your spouse the vacant block of land was sold on XX June 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-110
Income Tax Assessment Act 1997 section 118-185
Income Tax Assessment Act 1997 section 118-190
Income Tax Assessment Act 1997 section 118-120
Income Tax Assessment Act 1997 section 118-165
Income Tax Assessment Act 1997 subsection 118-115(1)
Reasons for decision
Generally, you can disregard a capital gain or capital loss from a capital gains tax (CGT) event that happens to a dwelling that is your main residence (section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)).
However, in order to obtain a full exemption from CGT, the dwelling must have been your main residence for the entire period you owned it (section 118-110 and 118-185 of the ITAA 1997), must not have been used to produce assessable income (section 118-190 of the ITAA 1997) and any land on which the dwelling is situated should not be more than two hectares.
The main residence exemption can apply to up to two hectares of land adjacent to a dwelling if the land was used primarily for private or domestic purposes in association with the dwelling (section 118-120 of the ITAA 1997)
Section 118-165 of the ITAA 1997 provides that the main residence exemption does not apply to a CGT event that happens in relation to land, to which the exemption can extend under section 118-120, if that CGT event does not also happen to the dwelling.
The term “dwelling” is defined in subsection 118-115(1) of the ITAA 1997 as a unit of accommodation that is a building, or contained in a building and which consists wholly or mainly of residential accommodation. In order for the main residence exemption to apply, there must be a dwelling.
In your case, you acquired land with the intention of building a house and making it your main residence, however the house was not built. CGT event A1 happened when the block of land was sold, but this CGT event did not happen in relation to a dwelling, therefore section 118-165 of the ITAA 1997 applies to deny the main residence exemption on the capital gain made on the disposal of the land.