Private ruling: Capital gains tax
Published: August 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Are you entitled to a main residence exemption on the sale of the vacant land? | No.

Relevant facts and circumstances: The deceased lived at the property in question since before 20 September 1985 until they moved into an aged care facility several years ago. The dwelling the deceased lived in was demolished as some stage between when the deceased moved into an age care facility and the date of death. The dwelling was not accidentally destroyed. The property was sold after the deceased's death as vacant land.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-10 | Income Tax Assessment Act 1997 Section 118-160

Reasons for decision: Summary: In its ordinary application, the main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) can only apply to a CGT event that happens to a dwelling - see subsection 118-110(1) of the ITAA 1997. The exemption extends to any capital gain or loss from land adjacent to a dwelling (of a maximum area of 2 hectares) if the land is used primarily for private or domestic purposes and the same CGT event happens to the land as the dwelling. There is only one circumstance, outlined in section 118-160 of the ITAA 1997, where the main residence exemption can be chosen for a CGT event that happens to vacant land. This is where a CGT event happens to the vacant land after a dwelling on the land that was your main residence was accidentally destroyed. The effect of making a choice under subsection 118-160(2) of the ITAA 1997 to apply the main residence exemption to the sale of vacant land is that the dwelling is taken to continue in existence as your main residence from the time when it is destroyed until your ownership of the land ends. If you make this choice you cannot treat another dwelling as your main residence during that period. In your case the exemption under section 118-160 of the ITAA 1997 is not available as the dwelling was not accidently destroyed, but removed from the land after the owner moved into aged care and before the land was sold.