Private ruling: Capital gains tax (CGT)
Date of advice: 14 February 2019
Published: May 2019
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will Capital Gains Tax (CGT) apply to the sale of Parcel two of your vacant block? | A1: Yes | Q2: Am I entitled to claim unavoidable expenses which were necessary costs of ownership of this property as the “Third Element Costs of Owning the CGT Asset”? | A2: No

Relevant facts and circumstances: You purchased the block of land in Spring 198X. You had hoped to make it your dwelling if the circumstances ever allowed you to build there. Due to changes in your circumstances you have decided to sub-divide this block of land into two parcels, one and two. You wish to sell parcel two and build a dwelling to allow you to live on parcel one.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 110-25 | Income Tax Assessment Act 1997 Section 118-B | Income Tax Assessment Act 1997 Section 118-115

Reasons for decision: Summary: Section 100-20 of the Income Tax Assessment Act 1997 (ITAA 1997) outlines what events attract capital gains tax (CGT). The sale of property is a CGT event A1 i.e. disposal of a CGT asset as outlined in section 104-5 of the ITAA 1997. Section 100-25 of the ITAA 1997 outlines what CGT assets are and this includes property. Section 100-3 of the ITAA 1997 outlines exceptions and exemptions for CGT. None of the exceptions and exemptions applies to your circumstances apart from possibly that applying to the main residence. Section 100-33 of the ITAA 1997 outlines whether rollover relief is available for various CGT events. The replacement asset rollovers are listed at section 112-115 and the same asset rollovers are listed at section 112-50. None of the rollovers listed apply to your situation. Section 118-B of the ITAA 1997 states that a capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is your dwelling is disregarded if – ● You are an individual; and ● The dwelling was your main residence throughout your ownership period; and ● The interest 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. Section 118-115 of the ITAA 1997 defines the meaning of the term dwelling as including a unit of accommodation. Since you have not, as yet, built a dwelling on the vacant block of land it has not been possible for you to occupy it as your main residence. Accordingly the Commissioner is unable to consider granting a main residence exemption on the sale of this property. Accordingly, CGT will apply upon the sale of this asset. Section 110-25 of the ITAA 1997 specifies that you are only able to claim the third element costs of owning a CGT asset only if you acquired the asset after 20 August 1991. Accordingly, costs associated with ownership (for example rates, land taxes, interest and repairs) can only be included in the cost base of assets acquired on or after 21 August 1991 where no deduction has or will be allowed for these costs. In your situation, as you purchased your block of land before this date, you cannot therefore include these costs when calculating the cost base of the land.