Private ruling: CGT event A1 - disposal of a CGT asset
Published: March 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will you be eligible to claim the main residence exemption under Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the sale of vacant land where it was intended that a dwelling be built and then occupied as your main residence? | A1: No. | Q2: If not, can you treat the capital gain from the sale of the vacant land as a discount capital gain under Subdivision 115-A of ITAA 1997? | A2: No. | Q3: Alternatively, can the capital gain on the sale of the land be rolled over? | A3: No.

Relevant facts and circumstances: During the relevant financial year, you exchanged contracts to purchase a vacant block of land with the intention to build a dwelling that you intended to make your main residence. However, after purchasing the land, you were advised that your chosen dwelling could not be built on your land without violating the developer's setback rules that are applicable to corner blocks in new developments. That advice was contrary to initial advice (provided by the builders) that setback rules had been relaxed. Further it subsequently came to your attention that a nearby learning institution was extending its property up to the back fence of your land which was not desirable. You sold the (first) vacant block of land in order to fund the purchase of a (second) new block of land on which your chosen dwelling would fit in accordance with the developer's rules and regulations (and further there would not be the distraction of the learning institutions extension). Contracts for the sale of the first block of vacant land were exchanged during the subsequent financial year. Your second block of vacant land is situated in the same estate as your first block of land as it is still your intention to build your main residence in the same locality. You provided land sale contracts and associated correspondence with your application for a ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 . | Income Tax Assessment Act 1997 Section 118-150 . | Income Tax Assessment Act 1997 Section 118-160 .

Reasons for decision: Summary: A capital gain or capital loss an individual makes from a 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. The only situation where the main residence exemption can apply to a CGT event that happens to vacant land is where a CGT event happens to vacant land after a dwelling that was your main residence is accidentally destroyed. In your case, the dwelling never existed and therefore this exemption does not apply to you. Subsection 115-25(1) of the ITAA1997 provides that to be a discount capital gain, the capital gain must result from a CGT event happening to a CGT asset that was acquired by the entity making the capital gain at least 12 months before the CGT event. You acquired your vacant block of land less than 365 days before the CGT event occurred and therefore it cannot be considered a discount capital gain. A rollover may be available for a capital gain you make if an asset of yours is lost, destroyed or compulsorily acquired and you use the proceeds to purchase a similar asset. However, in your case, the land did not suit your requirements and you made the decision to sell the land. There are no other rollover provisions that apply to your circumstances.