Private ruling: Capital gains tax
Published: December 2014
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Questions and answers | 1. Is the total capital gain or loss disregarded when you dispose of the property? | No. | 2. Is the capital gain or loss in relation to the land itself disregarded when you dispose of the property? | Yes. | 3. Is the capital gain or loss in relation to the residence disregarded when you dispose of the property? | No.

Relevant facts and circumstances: You entered into a contract to purchase vacant land prior to 20 September 1985. A residence and other structures were constructed on the land after 20 September 1985. You have entered into a contract to sell the property. Settlement will occur in 2016. The residence has at no time been your main residence. The property is not being sold as vacant land. The residence will remain on the property until after settlement however you intend to demolish the remaining structures prior to settlement.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-55 | Income Tax Assessment Act 1997 Subdivision 108-D | Income Tax Assessment Act 1997 Subdivision 118-B

Reasons for decision: Summary: CGT event A1 happens when you dispose of a CGT asset, however any capital gain or capital loss you make is disregarded if you acquired the asset before 20 September 1985 (section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). A building or structure that is constructed on land acquired before 20 September 1985 (pre-CGT) is treated as a separate CGT asset from the land if the construction contract was entered into post-CGT or, if there is no contract, construction started post-CGT (section 108-55 of the ITAA 1997). In your case, you entered into the contract to purchase the land prior to 20 September 1985 and therefore any capital gain or loss you make when you dispose of the property will be disregarded. As the residence was constructed on this land after 20 September 1985 it is therefore treated as a separate CGT asset and unlike the land itself, the capital gain or capital loss made in relation to the residence is not disregarded under section 104-10 of the ITAA 1997. As it was not your main residence at any time, you are not entitled to a full or partial main residence exemption under subdivision 118-B of the ITAA 1997. You will therefore need to consider the application of subdivision 108-D of the ITAA 1997 to determine how the separate CGT asset rules apply in your situation.