Private ruling: Capital gains tax - main residence
Ruling period: Year ended 30 June 2011. | Year ended 30 June 2012.
Date scheme commenced: 1 July 2008.

Ruling: Q1: Does the main residence exemption apply to the vacant land prior to building your dwelling? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-135 Income Tax Assessment Act 1997 Section 118-145 Income Tax Assessment Act 1997 Section 118-150 Taxation Administration Act 1953 subsection Sch1-359-10(3)

Reasons for decision: Detailed Reasoning - Capital gains tax: Capital gains tax (CGT) is not a separate tax. Any assessable capital gain is included in your tax return, along with your other income, and taxed at your marginal tax rate. You make a capital gain or a capital loss if a CGT event happens to your ownership interest in a CGT asset. An assessable capital gain will occur where the capital proceeds are greater than the cost base. A capital loss will occur where the reduced cost base is greater than the capital proceeds. The most common event, CGT event A1, happens if you dispose of you ownership interest to someone else. Certain exemptions operate to disregard capital gains or losses. If the asset you disposed of is your home, you may be entitled to a main residence exemption. | Detailed Reasoning - Main residence exemption: You can disregard a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence if: · you are an individual; · the dwelling was your main residence throughout your ownership period; · the property did not pass to you through a trust or a deceased estate; and · the property is less than two hectares. For an established dwelling, there is no restriction on the length of time that you live in the dwelling before it is considered to be your main residence. | Detailed Reasoning - Constructing a dwelling on land you already own: Section 118-150 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that if you build a dwelling on land you already own, the land does not qualify for an exemption until the dwelling becomes your main residence. However, you can choose to treat the land as your main residence for up to four years before the dwelling becomes your main residence in certain circumstances. There are conditions that you must satisfy before you can claim the exemption. You must first finish building and then: · move into the dwelling as soon as practicable after it is finished; and · continue to use the dwelling as your main residence for at least three months after it becomes your main residence. The land, including the dwelling that is built, is exempt for the shorter of the following periods: · the four year period immediately before the date the dwelling becomes your main residence; or · the period between the date you acquired the land and the date the dwelling becomes your main residence. In your case, you chose the dwelling as your main residence from the time you acquired the vacant land, you have not treated any other dwelling as your main residence for the ownership period, you constructed a dwelling within four years of acquiring the land, moved in as soon as practicable and you continued to treat the dwelling as your main residence. During the time you are living in temporary accommodation, you have elected to continue to treat the dwelling as your main residence. Therefore you can disregard any capital gain or capital loss made on the sale of the dwelling.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You acquired vacant land. | You are the sole owner of the title. | You chose the land as your main residence. | You constructed your residential home on the dwelling as an owner builder. | You commenced living at the dwelling. | The dwelling has not been used to produce assessable income until 2010. | The dwelling does not exceed two hectares in size. | You will sell the dwelling to a third party sometime during 2011 to 2012. | Your previous spouse will not be electing the dwelling as her main residence. | Your previous spouse did not own another dwelling (solely or jointly) that she chose as her main residence between the date of purchase to the date of sale. | You are currently living in temporary accommodation. | The dwelling has been used as an income producing asset since 2010. | Your new spouse does not own another dwelling (solely or jointly) that is her main residence for capital gains tax (CGT) purposes. | There has not been a change on the title or ownership of the dwelling since you purchased it.