Private ruling: Capital gains tax (CGT) on a dwelling you have never lived in.
Published: October 2012
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014.
Date scheme commenced: 1 July 2012.

Ruling: Q1: Do you have to pay CGT on the sale of a dwelling you have never lived in? | A1: Yes.

Relevant facts and circumstances: You own land which you intended to build your residence on. You were unable to build your main residence because your circumstances changed. You are required to build on this land within a two year period as stipulated by the developer. You intend to build on this land and then sell it or rent the dwelling out.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-150 | Income Tax Assessment Act 1997 section 118-185

Reasons for decision: Summary: CGT is the tax you pay on any capital gain you make. You make a capital gain or capital loss if a CGT event happens to a CGT asset. A dwelling is a CGT asset, therefore the sale of your property will constitute CGT event A1.The gain or loss is made at the time of the event. You will make a capital gain if the capital proceeds from the sale are more than the cost base of the asset. A capital loss will be made if the capital proceeds are less than the reduced cost base of the asset. Generally, you disregard any capital gain or loss realised on the disposal of a dwelling that was your main residence for your entire ownership period. If the dwelling was your main residence for part of your ownership period a partial exemption of CGT will apply for the period you resided in the dwelling as your main residence. There is no separate tax on capital gains; it is merely a component of your income tax. A capital gain is included in your income tax return and forms part of your assessable income. Your assessable income is then taxed at your marginal tax rate. While we understand that your original intention was to construct a dwelling that would be your main residence, this did not occur due to changing circumstances. As you have never lived in the dwelling, the main residence exemption will not apply if the property is sold after the dwelling is constructed or if it is rented out first and you have never lived in it. Therefore the dwelling will be subject to CGT when it is sold. To assist you in calculating your capital gain or capital loss when the dwelling is disposed of, please refer to the following enclosed fact sheets:

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.