Private ruling: Capital gains tax on the sale of vacant land intended to be main residence
Date of advice: 25 June 2015
Published: June 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to an exemption from capital gains tax (CGT) on the sale of a vacant block of land on which you intended to build your main residence? | A1: No.

Relevant facts and circumstances: You and your spouse purchased a block of land sometime after 20 September 1985 with the intention of building your first home in Australia. Shortly afterwards you were made aware that your relative, who is residing in overseas, has a serious illness and you and your spouse made the choice to move your family back to the overseas country to spend time with them and to help care for them. You found a buyer for the block of land and you entered into a contract of sale. Settlement for the sale took place less than 12 months after the purchase.

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 115-5, | Income Tax Assessment Act 1997 Section 115-10, | Income Tax Assessment Act 1997 Section 115-15, | Income Tax Assessment Act 1997 Section 115-20, | Income Tax Assessment Act 1997 Section 115-25, | Income Tax Assessment Act 1997 Section 115-100 and | Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision: Summary: You make a capital gain or capital loss when a capital gains tax (CGT) event, such as a sale, happens to a CGT asset. Your block of vacant land is a CGT asset. Generally, you disregard any capital gain or capital loss that you make from a CGT event that happens to a dwelling that was your main residence for your entire ownership period. However, in order for the exemption to apply a dwelling must be constructed and become your main residence. A mere intention to construct or to occupy a dwelling as a sole or principle residence, but without actually doing so, is insufficient to obtain the exemption. The Commissioner does not have any discretion to allow you to disregard a capital gain or capital loss where no exemption is available to you under the taxation legislation. In your case, the property you sold was vacant land that never had a dwelling on it. Therefore, you are not entitled to the main residence exemption on the sale of your property. Please note: where certain requirements are met, an individual is able to reduce their capital gain by 50%. However to qualify for this concession you must have owned the CGT asset for at least 12 months. As you have not owned your vacant block of land for a 12 month period you are not able to apply this concession to your capital gain.