Edited version of private advice

Authorisation Number: 1052065036980

Date of advice: 5 December 2022

Ruling

Subject: CGT - full main residence exemption

Question

Are you able to claim the full main residence exemption on the sale of the property under section 118-145 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Financial Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In XX 20XX, you and your spouse purchased a vacant block of land located at XX in the state of XX ('the land').

Shortly after purchase, you and your spouse entered a contract with a builder with the intention of building a residential property on the land.

In early 20XX, due to the impact of COVID on the construction industry, the builder varied the contract resulting in an increase of construction costs and no guarantee as to the build time.

You and your spouse were dissatisfied with the lack of certainty as you had young children. You decided to sell the land and purchase a property that already had a dwelling built on it rather than proceed with construction of a dwelling on the land.

You went to contract for sale of the land in XX 20XX.

At the time of sale, there was no dwelling on the land.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-150

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common capital gains tax (CGT) event, CGT event A1, occurs when you dispose of a CGT asset to someone else. For example, if you sell a property, land and dwellings are CGT assets.

Under section 118-110 of the ITAA 1997, you can generally disregard any capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence for the entire period you owned it when:

• the dwelling was your home for the whole period you owned it;
• the dwelling was not used to produce assessable income; and
• any land on which the dwelling is situated is not more than two hectares.

You are only able to treat one dwelling as your main residence at any time (apart from limited circumstances where you are changing main residences).

You only get a partial exemption for a CGT event that happens in relation to your ownership interest in a property if the dwelling was your main residence for only part of your ownership period.

A dwelling is considered to be your main residence from the time you acquired your ownership interest in it if you moved into it as soon as practicable after that time.

However, there are limited situations that enable the main residence exemption to be extended to vacant land, for those to apply there must be a dwelling that you have resided in during your ownership period.

Section 118-150 of the ITAA 1997 provides that the main residence exemption may be applied to land retrospectively for a maximum period of four years, provided that:

•         a dwelling is actually constructed on the land,

•         you move into the dwelling as soon as practicable after the construction is finalised; and

•         it continues to be your main residence for at least three months.

The mere intention to construct a dwelling or to occupy a dwelling as a sole or principal residence, but without actually doing so, is insufficient to obtain the main residence exemption.

In your circumstance you purchased a vacant block of land (vacant land) with the intention to build a dwelling on it and treating it as your main residence.

You encountered issues with the proposed construction of the dwelling because of the impact of Covid. This caused you to decide to sell the vacant land rather than proceed with construction of a dwelling, and instead purchase a property where there was already an existing dwelling on the property.

Application to your circumstances

There is no reference in the Capital Gains Tax legislation that gives the Commissioner any discretionary powers to disregard the capital gain or capital loss made on the sale of vacant land where the individual/s intend to build a dwelling as their main residence but fails to do so due to Covid-related impacts.

The mere intention to construct a dwelling on vacant land as your principal place of residence, but without actually doing so, is insufficient to apply section 118-150 of the ITAA 1997 to the sale of the vacant land.

As the Commissioner has no discretion to disregard any capital gain or capital loss and you are unable to apply section 118-150 of the ITAA 1997, you are not entitled to claim any main residence exemptions on the sale of the vacant land.