Private ruling: capital gains tax - disposal of vacant land/intended main residence
Published: March 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1:  | A1: 

Relevant facts and circumstances: Your acquired a vacant block of land. You acquired the vacant land to build your main residence. Your spouse contributed funds to the purchase of the vacant land. Approximately three years ago you engaged a builder to construct a dwelling off site at the builder's yard and upon completion, shift it to your vacant block of land to be affixed to stumping. The same year you paid the builder a specified amount which comprised of a deposit for the construction of the dwelling, administration fee and council and engineering fees. The builder failed to commence construction of the dwelling. You engaged a solicitor to handle your dispute with the builder in relation to the commencement of the dwelling and the costs incurred to terminate the contract. You contacted an organisation to assist you with building commencement or recover your costs. Approximately 18 months ago you took your dispute with the builder to the relevant Tribunal. You were not able to proceed with building a dwelling on your vacant land due to the expenses you had incurred so you disposed of it. You have provided documentation to support your application and this documentation is to be read with and forms part of your application for the purpose of this ruling.

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

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Reasons for decision: 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. 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 disposed of your main residence as long as it is has been your main residence for your entire ownership period. The main residence exemption may be extended to a vacant block of land for a period of up to 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 that you fully intended to build your main residence on the vacant block of land, a dwelling was not constructed on it. The Commissioner has no discretion to disregard any capital gain or capital loss you made on the disposal of the vacant block of land. | 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 can use the discount method to calculate your capital gain as you meet all the relevant criteria. The discount percentage is 50% for individuals. Further information is available on our website (www.ato.gov.au) on how to calculate your capital gain or capital loss.

Subject: capital gains tax - disposal of vacant land/intended main residence: Question: Is a capital gain or capital loss disregarded on the disposal of your vacant land on which you intended to construct your main residence?