Private ruling: Main residence exemption
Date of advice: 2 February 2018
Published: June 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to a CGT exemption on the sale of land after the main residence has been demolished? | A1: No.

Relevant facts and circumstances: You wish to sell your home which has been your main residence since September 200X. The current home is in extremely poor living condition and there is a proposed heritage overlay. You wish to demolish the house prior to the heritage overlay and either sell it as a vacant block or at worst re build on the property. You have no intent to turn the property into an investment and have never operated a business from the house or have you sort planning in any way to create an investment. You have sort a demolition permit and are in the process of the demolition prior to the implication of the heritage overlay which will prevent the demolition of the home forever.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 118-110(1) | Income Tax Assessment Act 1997 Section 118-115 | Income Tax Assessment Act 1997 Section 118-160 | Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision: Summary: A capital gain or capital loss an individual makes from a CGT event that happens to a dwelling is disregarded under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) if the dwelling was the individuals main residence for the entire period you owned it. The exemption extends to any capital gain or capital loss from land adjacent to a dwelling (to a maximum of two hectares) if the land was used primarily for private or domestic purposes in association with the dwelling (section 118-120 of the ITAA 1997). Where you demolish a dwelling and do not build a replacement dwelling on the land but instead sell the property as vacant land, the main residence exemption is lost as the exemption attaches to the dwelling and not the land. Although the main residence exemption can apply to vacant land after a dwelling that is your main residence is accidently destroyed, voluntary demolishing your home is not considered to be accidentally destroyed. Therefore, you are not entitled to the main residence exemption upon the sale of your property as no dwelling will exist at the time of disposal of the land.