Edited version of private advice

Authorisation Number: 1052234052938

Date of advice: 25 March 2024

Ruling

Subject: CGT - sale of vacant land

Question 1

Are you subject to capital gains tax on the sale of your vacant land?

Answer

Yes.

Question 2

Are you able to use the main residence exemption to disregard any capital gain you make on the sale of your vacant land?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

A few years ago you and your spouse purchased a block of land.

You and your spouse paid a deposit on the land.

A few months after purchase you and your spouse paid the stamp duty.

A number of months after you purchased the property you and your spouse paid a deposit to a builder.

You and your spouse picked the design, had plans drawn up for a home to be built on the land.

No dwelling was built on the land.

You and your spouse decided to sell the vacant land and purchase an already constructed home.

The intention was for the house that was to be built to be your main residence.

A few years after the property was purchased you and your spouse sold the vacant land.

Settlement for the land is in the future and you are required to pay the balance of the contract at this time.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Reasons for decision

A capital gain or capital loss may arise if a capital gains tax event (CGT event) happens to a capital gains tax asset (CGT asset). The most common CGT event is CGT event A1 and this occurs when an entity disposes of the ownership interest in an asset. The sale of vacant land would be considered to be a CGT event A1.

Under certain circumstances, you may be able to disregard a capital gain or capital loss that is made on the sale of an asset. For example, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence. The exemption is also extended to include up to 2 hectares of land that is adjacent to the dwelling.

However, the main residence exemption can only be applied to land owned by a taxpayer if the taxpayer sells the land as part of the sale of a dwelling. That can include situations where a taxpayer builds a dwelling on the land or repairs, renovates or finishes building a dwelling on the land and then moves into the completed dwelling.

The only time that the main residence exemption applies to the sale of vacant land is where it is sold after the accidental destruction of a main residence that was sited on it. There are no other provisions that provide an exemption for a capital gain or capital loss due to the sale of vacant land.

A mere intention to construct a dwelling as your main residence without actually doing so is insufficient to obtain the exemption.

In your case CGT event A1 will occur when you and your spouse dispose of the vacant land.

Regardless of the intentions that you held when you bought the block of land, you are not selling a dwelling with the land, nor are you selling a vacant block of land on which an existing dwelling was destroyed. As you do not meet any of the necessary conditions to be eligible for any of the exemptions on the disposal of vacant land, you will not be able to disregard any capital gain made on the disposal of the vacant land.

Therefore, CGT event A1 will occur when you and your spouse dispose of the vacant land and you, and your spouse must include any capital gain made on the disposal of the vacant land in your income tax return.