APU - Main Residence - Subject to CGT

CONSTRUCTION ON VACANT LAND – MAIN RESIDENCE

Apu purchased a vacant block of land on 1 July 2000 for $200,000. He built a house on the vacant land on 1 July 2010 for a cost of $250,000 (the market value of the vacant land at that time was $300,000) and moves into the property immediately and makes it his main residence once completed. Apu sells the house and land on 1 July 2019 for $800,000. Does Apu pay CGT on the sale ?

The capital gain on sale of the property would be partly subject to CGT. The vacant land can be only treated as his main residence for the shorter of the following periods:

• the four year period immediately before the date the dwelling becomes his main residence, or
• the period between the date he acquired the land and the date the dwelling becomes his main residence.

In Apu’s case, the land would be exempt from 1 July 2006 (four years prior to 2010 when he moved into the house) until 2019 when he sold it.

The construction costs would be included in the cost base of the property. He will have to apportion the capital gain as follows:

Capital gain * ( No days the property was not main residence/ total no days in ownership)

In Apu’s case his capital gain on sale will be

$350,000 x (2,192/6940) = $ 110,547

He can also apply the general 50% CGT discount as the asset was held for more than 12 months.

N.B. Apu may also have third element costs that also need to be considered in calculating the capital gain.