Edited version of private advice

Authorisation Number: 1052105006160

Date of advice: 13 April 2023

Ruling

Subject: CGT - main residence exemption

Question 1

Are you entitled to the full main residence exemption under section 118-110 of the Income Tax Assessment Act 1997on the sale of vacant land?

Answer

No.

Question 2

Are you entitled to a partial main residence exemptionunder section 118-185 of the Income Tax Assessment Act 1997on the sale of vacant land?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX.

Year ended 30 June 20XX.

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You reside in a rental property.

You have a physical disability.

You need to vacate the rental property.

You purchased a vacant block of land with the intention of building a new residential home (the land).

You engaged an architect to assist with the design of the dwelling to your needs.

A short time later you applied for a development application from the local shire council.

You entered into a draft building contract with a specialist residential property building firm.

You encountered significant delays in obtaining amended construction and building approvals from the local shire council.

The development application process has been ongoing for more than 12 months.

There is no indication of when the development applications will be granted.

You expect construction of the new dwelling to take approximately 18-24 months.

You are considering selling the vacant land.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-135

Income Tax Assessment Act 1997 section 118-150

Income Tax Assessment Act 1997 section 118-185

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 you have disposed of.

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).

Under section 118-185 of the ITAA 1997, 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 delays in getting the development application approved by the local Shire Council. This process has taken over 12 months and there is no indication of when the development application will be approved.

Due to your specific needs and having to vacate the rental property where you live you are considering selling the vacant land and purchasing a home which you will modify to your needs.

Application to your circumstances

There are no provisions in the capital gains tax legislation that give 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 fail to do so.

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 118-110 or section 118-185 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, you are unable to apply section 118-110 or section 118-185 of the ITAA 1997 to the sale of the vacant land, thus you are not entitled to claim any main residence exemptions on the sale of the vacant land.