Issue
Can section 118-160 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to exempt a sale of vacant land following the accidental destruction of a dwelling that was never your main residence?
Decision
No. Section 118-160 of the ITAA 1997, which enables you to choose to apply the main residence exemption to a sale of vacant land, requires that a dwelling that is your main residence be accidentally destroyed.
Facts
An individual acquires land and a dwelling after 19 September 1985.
The dwelling is used as a rental property throughout the time that it is owned.
The dwelling is destroyed in a cyclone.
The vacant land is sold.
Reasons for Decision
The main residence exemption in Subdivision 118-B of the ITAA 1997 applies to a capital gain or loss from a CGT event that happens to a dwelling that is your main residence (subsection 118-110(1) of the ITAA 1997).
The exemption extends to land that is adjacent to a dwelling (to a maximum area of two hectares including the land on which the dwelling is built) if the land is used primarily for private or domestic purposes in association with the dwelling (section 118-120 of the ITAA 1997). However the exemption does not apply to land if separate CGT events happen to the land and the dwelling other than through a compulsory acquisition under section 118-245 of the ITAA 1997 (section 118-165 of the ITAA 1997).
The main residence exemption can be chosen for a CGT event that happens to vacant land. This is where the CGT event happens to the land after a dwelling that is your main residence is accidentally destroyed (section 118-160 of the ITAA 1997).
You cannot choose for section 118-160 of the ITAA 1997 to apply to the sale of vacant land if, at the time the dwelling was accidentally destroyed, it was not your main residence.
Accordingly, no main residence exemption will be available under Subdivision 118-B of the ITAA 1997 for any capital gain or loss arising from the sale of the vacant land.
Amendment History
Date of amendment Part Comment 26 February 2016 Reasons for Decision Amended for clarity and to reflect changes in the relevant legislation. Legislative references Included reference to section 118 245 of the ITAA 1997.
Date of amendment | Part | Comment
26 February 2016 | Reasons for Decision | Amended for clarity and to reflect changes in the relevant legislation.
Legislative references | Included reference to section 118 245 of the ITAA 1997.