Private ruling: Main residence exemption - Capital Gains Tax
Published: April 2013
Ruling period: The relevant income year to 30 June 2012
Date scheme commenced: The relevant income year.

Ruling: Q1: Can the taxpayer claim the main residence exemption for capital gains tax purposes on the sale of a block of land that was going to be main residence, given the extenuating circumstances? | A1: No

Relevant facts and circumstances: The taxpayer purchased a vacant block of land. The taxpayer fully intended to build a house on the block, which was to have become their principal place of residence with their spouse. The taxpayer became ill. The taxpayer's increasing bad health and time off work forced them to cease work completely due to health reasons. Due to ill health the taxpayer was unable to build on the property. The taxpayer sold the land without building on it.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Subdivision 118-B | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-115 | Income Tax Assessment Act 1997 Section 118-120

Reasons for decision: Summary: The land disposed of did not have a dwelling on it at the time of disposal. Therefore, the capital gain made on the disposal of the land cannot be disregarded under section 118-110 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Capital gains tax event A1, section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happens upon the disposal (sale) of a CGT asset. Section 108-5 of the ITAA 1997 defines a CGT asset Note 1 in section 108-5 makes it clear that a CGT asset includes land and buildings. Under CGT event A1 a capital gain is made if the asset was acquired on or after 20 September 1985 and the capital proceeds from the disposal are more than the cost base. A capital gain or capital loss made as a result of CGT event A1 happening to a CGT asset is disregarded if the CGT asset is a dwelling which is your main residence throughout your ownership period. A dwelling is defined in section 118-115 of the ITAA 1997 as a unit of accommodation and any land directly under the unit of accommodation. Section 118-120 extends the definition of dwelling to adjacent land up to a maximum of 2 hectares. The above indicates that for a capital gain made on the sale of land to be exempt as ones main residence, it must have a dwelling on it. Further, subsection 118-165 of the ITAA 1997 states that the exemption does not apply to land or a structure disposal of separately to the dwelling. This section does not give the Commissioner any discretion und any circumstance, or for any reason, to extend the exemption where land or a structure is disposed of separately to a dwelling. In your case the land you disposed of did not have a dwelling on it. Although you did intend to build your residence on the land, this did not happen. Therefore, the land does not come within the extended definition of dwelling in section 118-120 of the ITAA 1997. Therefore, as the Commissioner has no discretion under subsection 118-165 of the ITAA 1997, the capital gains made on the disposal of the land cannot be disregarded under section 118-110 of the ITAA 1997