Private ruling: The main residence exemption for vacant land
Date of advice: 24 July 2017
Published: November 2017
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Is the capital gain or loss made upon the disposal of vacant land on which you intended to construct your main residence disregarded? | A1: No.

Relevant facts and circumstances: You purchased land “off the plan” in late 20WW. The subdivision was meant to be registered by mid 20XX. It was your intention to use this land to build a new dwelling that would become your main residence. In order to fund the purchase of the land you sold your, then current, home in early 20XX. Upon the sale of your previous property you moved in with your child to save money for the construction of your new dwelling. Due to circumstances beyond your control the subdivision was not registered until late 20YY. Plans were drawn for a proposed new dwelling. The developer, from which you purchased the land, attempted to rescind the land purchase contract. It was unsuccessful. The developer refused to complete the contract, however, after negotiations which resulted in an additional payment of $XX the contract was completed in late 20YY. In early 20ZZ you were diagnosed with an illness. A review of the house plans was carried out in an attempt to accommodate the present and future disabilities of your medical condition. Due to the steep slope of the land the house would have a significant number of steps which would be extremely difficult for you to use and would create significant risk of falling and serious injury. In early 20ZZ you decided to sell the vacant land with the intention of purchasing a single story home that that would better suit your future needs.

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

Reasons for decision: Detailed Reasoning - Capital gains tax (CGT): A capital gain or capital loss an individual makes from a capital gains tax (CGT) event that happens to a dwelling is disregarded under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) if the dwelling was the individuals main residence for the entire period you owned it. Section 118-150 of the ITAA 1997 provides that the main residence exemption may be applied to land retrospectively for a maximum period of four years, provided that: ● a dwelling is actually 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 land a dwelling was not constructed on the vacant land. The Commissioner has no discretion to disregard any capital gain or capital loss you and your spouse made upon its disposal.