Private ruling: Capital gains tax - main residence - destruction of dwelling
Published: June 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Will the main residence exemption apply to your vacant block of land? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-110(1) | Income Tax Assessment Act 1997 Section 118-120 | Income Tax Assessment Act 1997 Section 118-160 | Income Tax Assessment Act 1997 Subsection 118-160(2)

Reasons for decision: Summary: In its ordinary application, the main residence exemption can only apply to a capital gains tax (CGT) event that happens to a dwelling. The exemption extends to any capital gain or loss from land adjacent to a dwelling (of a maximum area of 2 hectares) if the land is used primarily for private or domestic purposes and the same CGT event happens to the land as the dwelling. There is only one circumstance, outlined in section 118-160 of the Income Tax Assessment Act 1997 , where the main residence exemption can be chosen for a CGT event that happens to vacant land. This is where a CGT event happens to the vacant land after a dwelling on the land that was your main residence was accidentally destroyed. The effect of this is that the dwelling is taken to continue as your main residence from the time when it is destroyed until your ownership of the land ends. Accordingly, an exemption for the land is available, provided that the land is used primarily for private purposes in association with the actual or notional dwelling. In your case, a full exemption for the sale of the vacant land is available as the land was used solely for private purposes in association with the dwelling. Note: If you make this choice no other dwelling can be considered to be your main residence while the choice applies.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | The property was destroyed during the bushfires. | You received an insurance payment as a result of the destruction of your house. | The property is 1 acre in size and has not been used to produce assessable income. | The property is now vacant and has been listed for sale. | Around June 2010, you purchased a new property. | New building regulations have been introduced which has decreased the desirability for sale of your block of land as it is in a high bushfire risk area. | You anticipate that the Government will purchase the property as part of the bushfire buyback scheme.