Private ruling: capital gains tax - disposal - block of land
Published: November 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011.

Ruling: Q1: Is the capital gain made upon the disposal of vacant land on which you intended to construct your main residence disregarded? | A1: No.

Relevant facts and circumstances: You sold your home after 20 September 1985 and moved to another town after being treated for medical conditions. As you were unable to find a home in the new town you purchased a park home which you placed on a site, at caravan park. You also purchased a block of land which you intended to build a home on after your health improved. The caravan park changed hands and the new owners wanted to upgrade. As a result you ended up selling your park home at a loss. You moved in with friends. You were unable to secure finances. You put your block of land up for sale and after several years you received your first offer and accepted it. The contract date was in the relevant year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10. | Income Tax Assessment Act 1997 section 118-150. | Income Tax Assessment Act 1997 section 118-110. | Income Tax Assessment Act 1997 section 110-25.

Reasons for decision: Summary: Capital gains tax (CGT) is the tax you pay on any capital gain you make. 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. A block of land is a CGT asset. You make a capital gain or capital loss if a CGT event happens to a CGT asset. The most common CGT event, (CGT event A1) happens if an individual disposes of a CGT asset to another entity. The time of the event is when the contract for the disposal is entered into, or if there is no contract, when the change of ownership occurs. A CGT event A1 occurred when you disposed of your vacant land. | Detailed Reasoning - Main residence exemption: Generally, you can disregard any capital gain or capital loss you make when you dispose of your main residence as long as it is your main residence throughout your ownership period. The main residence exemption may be extended to a vacant block of land for a period of four years, provided that: · a dwelling is constructed on the land, · you move into the dwelling as soon as practicable after the construction is finalised; and · it continues to be your main residence for at least three months. The mere intention to construct a dwelling or to occupy a dwelling as a sole or principle residence, but without actually doing so, is insufficient to obtain the exemption. You are not entitled to the main residence exemption as a dwelling was never constructed on your vacant block of land. While we appreciate your situation and your intention to build your main residence on the vacant land, a dwelling was never constructed. The Commissioner has no discretion to disregard any capital gain or capital loss you made upon its disposal. | Detailed Reasoning - Cost base: The cost base of a CGT asset is made up of five elements: 1. money or property given for the asset, 2. incidental costs of acquiring the CGT asset or that relate to the CGT event, such as cost of transfer, stamp duty and costs of advertising or marketing, 3. costs of owning the asset, such as rates, land taxes and non-deductible interest on borrowings, 4. capital costs to increase or preserve the value of your asset or to install or move it, and 5. capital costs of preserving or defending your ownership of or rights to your asset. · You are eligible to use the discount method to calculate your capital gain. For individuals who use the discount method, a discount of 50% can be applied to the net capital gain.

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