Private ruling: CGT and assessability of capital gain
Published: November 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and answer: | Are you entitled to disregard in full or in part any capital gain that results from the disposal of your property? | No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You purchased a block of land post 20 September 1985, with the intension of building a dwelling and establishing it as your main residence. You engaged a builder who began construction. During the construction stage the builder went into liquidation resulting in the construction of dwelling being left half completed. A number of years later, you and your spouse purchased the unit that you had been living in and renting. After the purchase of the unit, you disposed of the block of land with the half completed dwelling. At no stage did you or your spouse occupy the half completed dwelling as your main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Section 104-10

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. Section 108-5 of the ITAA 1997 lists land and buildings as CGT assets. Under section 104-10 of the ITAA 1997, a CGT event A1 occurs when you dispose of a CGT asset to someone else. The time of the event is when the contract is entered into. You make a capital gain if the capital proceeds from the disposal are more than the assets cost base. You make a capital loss if those capital proceeds are less than the assets reduced cost base. | Detailed Reasoning - Main residence exemption: Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or loss made from a CGT event that happens to a dwelling that is your principle place of residence. In order for exemption provisions under section 118-110 of the ITAA 1997 to apply, the property must have been established at some stage as your main residence. In your case, you or your spouse have never occupied the dwelling situated on the block. Hence this property has never been established as you or your spouse's principle place of residence. As this property has never been occupied as your principle place of residence, section 118-110 of the ITAA 1997 will not apply to exempt any capital gain or loss that results from the disposal of the property from being assessable. It is acknowledged that you intended to establish the property as your main residence and that you encountered difficulties when your builder went into liquidation. However there is no discretion under the ITAA 1997 or ITAA1936 that would allow you to disregard any capital gain or loss where the property was not established as your principle place of residence. Accordingly, you are not entitled to disregard any capital gain or loss that results from the disposal of your property.