Private ruling: CGT - main residence
Date of advice: 17 November 2022
Published: 16 January 2023
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the main residence exemption apply to the sale of the block of land you own? | A1: No.

Relevant facts and circumstances: You and your spouse lived in your main residence since acquiring it in 20XX until you sold the property. You decided to upgrade your family home with the view of selling your main residence and building a new property which you would move into with the intention it would become your main residence. You and your spouse signed a contract to purchase a block of vacant land (the property). The property has a total area of less than 2 hectares. You continued to live in your existing main residence after purchasing the vacant land. You intended to build your main residence on the property. You received a quote and signed new house plans and placed a holder's deposit to secure the build price to build your new main residence. Plans were drafted for the building of the property and signed. You received quotes for the construction of a shed on the property. A catastrophic flooding event hit the region. The flooding event resulted in a shortage of building supplies and tradespeople. This forced you to decide if you would continue to build your new property or purchase an existing residential property in which to live. You had listed your main residence for sale which subsequently sold. You believed that the flooding events and the subsequent shortage of building supplies and tradesman contributed to the shortage of rental properties in the region and therefore you decided to sell both your previous main residence and the vacant block of land on which you intended to build your new main residence and to purchase an existing property in which to live. You and your spouse entered a contract to purchase an existing property. You now consider the residential property that you purchased to be your main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-115 | Income Tax Assessment Act 1997 section 118-120 | Income Tax Assessment Act 199 7 section 118-150

Reasons for decision: Summary: Section 118-110 of the ITAA 1997 details the basic case for the main residence exemption. It enables you to disregard a capital gain or loss made on the disposal of a dwelling, provided you are an individual, the dwelling was your main residence during your ownership period, and you have not used the dwelling to produce assessable income. Subsection 118-115(1) of the ITAA 1997 defines a dwelling as a unit of accommodation that is: • a building, or contained in a building of wholly or mainly residential accommodation, • a caravan; houseboat, or other mobile home, and • the land immediately under the accommodation. Generally, a dwelling is considered your main residence if: • you and your family live in it, • your personal belongings are in it, • it is the address your mail is delivered to, • it is your address on the electoral roll, and • services such as gas and power are connected. Additionally, under subsection 118-120(3) of the ITAA 1997 for the main residence exemption to apply, any land on which the dwelling is situated must be two-hectares or less. The primary condition for the main residence exemption to apply is that a CGT event occurs to a dwelling, for instance, when a dwelling and the land it is situated on is sold. The legislation has only limited situations that enable the main residence exemption to be extended to vacant land. For those to apply, a dwelling must have existed on the property that you have resided in during your ownership period. In relation to the edited advice quoted in your request, section 118-150 of the ITAA 1997 does contain a provision to allow an extension of time that a vacant block of land can be included in the main residence exemption when you build, renovate, or repair a dwelling. For example, you purchase a vacant block of land, construct a dwelling (your home) over the first two-years, you move in and the dwelling becomes your main residence on completion in the third year, then you sell the property seven years later. Under section 118-150 of the ITAA 1997, you can claim the full main residence exemption from when you purchased the vacant land to when you sold the property, including the first years as a vacant block as your main residence. Subsection 118-150(4) of the ITAA 1997 limits the time in which this extension can apply to the shorter period of either four years, or the period starting from when you purchased or acquired the land and ending when the dwelling becomes your main residence. However, subsection 118-150(3) of the ITAA 1997 outlines that you can only apply this provision once a dwelling that you construct, repair, or renovate becomes your main residence, by moving-in as soon as practicable after the work is finished and continuing to reside in the dwelling. Though section 118-150 of the ITAA 1997 does provide a provision to enable you to choose to extend the main residence exemption to vacant land, it is only applicable when you have constructed a dwelling that is your main residence on that land. As you have not begun construction of a dwelling and are choosing to sell the property as vacant land, you have not met the requirements of subsection 118-150(3) of the ITAA 1997, therefore the Commissioner's discretion of paragraph 118-150(4)(a) of the ITAA 1997 cannot apply to your circumstances.