Terry_W_Building on Vacant Land and the CGT Exemption

The podcast discusses the Main Residence Exemption for Capital Gains Tax when building on vacant land. Normally, you cannot claim a tax exemption for vacant land unless there is a dwelling on it. However, Section 118-150 of the Income Tax Assessment Act allows vacant land to be counted as the main residence for up to 4 years prior to the completion of a dwelling. This exemption also applies to repairing or renovating an existing property. If you choose to use this exemption, you must move into the property and live in it as your main residence for at least 3 months after the completion of the project. The Commissioner of the ATO may allow for a greater time period in extenuating circumstances. The 4-year period starts when you acquire ownership of the land and ends when it becomes your main residence, usually after an Occupancy Certificate is issued. It is advisable to seek tax and legal advice regarding this matter. G'day and welcome back, this is the Structuring Podcast, Terry Waugh here and today I want to discuss the Main Residence Exemption for Capital Gains Tax when building on vacant land. This is covered in Section 118-150 of the Income Tax Assessment Act 1997 and normally you cannot claim a Capital Gains Tax exemption for vacant land unless it has a dwelling on it. That could cause a problem where someone buys vacant land and they build a number of years later. So to rectify that sort of situation this section, Section 118-150 allows vacant land to be counted as the main residence for up to 4 years prior to the completion of a dwelling on it. So what this means is if you, in 2024, if you buy vacant land and you start building and you don't complete that building until say 2028, then you could still claim the main residence exemption going back to the purchase point at 2024. But to do that you must not have already claimed another property as the main residence for that overlapping period. This section also can apply to repairing or renovating an existing property on land and that's covered by Subsection 2 of the same section. It's a choice, you don't have to use this exemption but you can use it and if you do use it there's a requirement that you move into the property and live in it as your main residence for at least 3 months after the completion of the project. There's also an option for if there's a limit of 4 years but there is an option for the Commissioner of the ATO to allow for a greater time period. So in extenuating circumstances it might take 5 years to build. If that ever happens you can apply for a private ruling and give the Commissioner the reasons for the delay, he will consider it and then grant the extension of time or not. The 4 years starts when you acquire your ownership interest in the land and it ends when it becomes your main residence. Generally it can't be your main residence until there's an Occupancy Certificate. So even though you may move in it earlier than that, it probably can't be counted as your main residence until the Occupancy Certificate is issued. As always make sure you do get tax and legal advice on this one and that's it for this week.