Private ruling: Capital gains tax
Published: October 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Are you entitled to disregard the capital gain you made when you disposed of the property? | No.

Relevant facts and circumstances: You purchased a property after 1985. The property was your primary residence until you moved out. You demolished the dwelling on the property. You intended to build a larger home on the property and had house plans drawn up. Construction of the new dwelling did not eventuate due to personal reasons. You purchased another dwelling and sold the property as vacant land. You made a capital gain when you disposed of the property. The property was less than two hectares in size.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 subsection 118-145(3) | Income Tax Assessment Act 1997 Section 118-150 | Income Tax Assessment Act 1997 subsection 118-150(5)

Reasons for decision: Summary: Your assessable income for income tax purposes includes the amount of any net capital gain you make in an income year. You make a capital gain or loss only if a capital gains tax (CGT) event happens. The most common CGT event happens if you dispose of an asset to someone else, for example, if you dispose of a property. Under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) you can generally disregard a capital gain or capital loss you make from the disposal of a dwelling that qualifies as your main residence as long as: · the dwelling was your main residence for the whole period you owned it, and · your interest in the dwelling did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. Once a dwelling has been established as your main residence, you may continue to treat that dwelling as your main residence despite an absence from the dwelling. Where the dwelling is used to produce rental income, the period of time you may treat it as your main residence is limited to a maximum of six years while you use it for that purpose. If you do not use the dwelling to produce income you can treat it as your main residence indefinitely (subsection 118-145(3) of the ITAA 1997). In your case, you purchased a property which was your main residence until you moved out. You demolished the dwelling on the property and therefore, could not treat the property as your main residence from that time. Where you build a dwelling on land you own, you can choose to treat the dwelling as your main residence from the time you acquired your ownership interest (section 118-150 of the ITAA 1997). There is a time limit during which the choice can operate. This is the shorter of four years before the dwelling becomes your main residence, or the period from when you acquired the property and ending when the dwelling becomes your main residence. Where there was a dwelling on the land when you acquired your ownership interest, the date you acquired the property for the purposes of section 118-150 is taken to be when you ceased to occupy the dwelling (subsection 118-150(5) of the ITAA 1997). In your case, you ceased to occupy the dwelling and then demolished it. You had plans to construct a new dwelling; however, this did not eventuate. Therefore, section 118-150 of the ITAA 1997 does not apply to you. The sale of your property as vacant land constituted a CGT event and there are no provisions in the income tax legislation that allow you to disregard the capital gain. Therefore, the capital gain you made on the sale of your property is included in your assessable income. Although we acknowledge your personal circumstances, the Commissioner has no powers of discretion under the law to grant an exemption from taxation to individual taxpayers where the law states that tax applies. You are entitled to a 50% discount on the amount of the capital gain you made as you owned the property for at least 12 months before you disposed of it.