Edited version of private advice

Authorisation Number: 1052363469498

Date of advice: 18 February 2025

Ruling

Subject: Capital gains tax

Question 1

Is the transfer of a portion of your ownership interest in the property capital gains tax (CGT) exempt?

Answer 1

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased the property several years ago.

It was your intention to build a main residence on the vacant land.

A couple of years ago you married your spouse.

You decided to transfer a portion your ownership interest of the vacant land to your spouse.

The construction of your main residence will commence in the future.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104

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 transfer of a portion of your ownership interest in the vacant land would 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 situated on that land. There are no other provisions that provide an exemption for a capital gain or capital loss due to the sale or transfer of vacant land.

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

In your case CGT event A1 occurred when you transferred part of your ownership interest of the vacant land to your spouse.

Regardless of the intentions that you held when you bought the block of land, you have not built your main residence on the vacant land.

The Commissioner has no discretion under the legislation to allow you to ignore the capital gain made when you transferred part of the ownership in the vacant land to your spouse.

Therefore, CGT A1 occurred when you transferred the ownership interest in the vacant land to your spouse.

You are required to declare this gain in your tax return for the relevant income year.