Join Australia's most dynamic and respected property investment community

Tax Tip 99: Vacant Land and the CGT Exemption

Discussion in 'Accounting & Tax' started by Terry_w, 17th Mar, 2016.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,989
    Location:
    Sydney
    Tax Tip Vacant Land and the CGT Exemption


    Vacant land does not qualify for the exemption against CGT unless a dwelling is built on it within 4 years of its acquisition.It can't be a residence without a dwelling on it!


    The conditions to get the main residence exemption on what was initially vacant land are:

    - Construct a dwelling within 4 years;

    - The dwelling is lived in at least for 3 months;

    - The property becomes the main residence “as soon as practicable after the work is finished”; and

    - No over property is claimed as the main residence for the same period.


    Interestingly the ATO seem to have a broad view of as soon “as practicable after the work is finished” in some instances such as:

    Example 3:

    8. The construction of Mary's dwelling is due to finish on 1 March. On 11 February, Mary is directed by her employer to go overseas on an assignment for 4 months, leaving on 25 February. The construction of Mary's dwelling is finished on 1 March. Mary moves into the dwelling on her return to Australia in mid June.

    9. As she is required by her employer to go overseas, Mary is taken to have moved into the dwelling as soon as practicable after the construction of the dwelling is finished.

    (from TD 92/147)


    See s 118-150 ITAA 1997
    INCOME TAX ASSESSMENT ACT 1997 - SECT 118.150 If you build, repair or renovate a dwelling


    TD 92/147 Income tax: capital gains: how soon after the construction of a dwelling is finished must the dwelling become the main residence of a taxpayer to satisfy the conditions in paragraph 118-150
    TD 92/147 - Income tax: capital gains: how soon after the construction of a dwelling is finished must the dwelling become the main residence of a taxpayer to satisfy the conditions in paragraph 118-150(3)(a) of the Income Tax Assessment Act 1997 ? (As at 12 May 2010)
     
  2. datto

    datto Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,392
    Location:
    Mt Druuiitt
    What if you pitch a tent on the land within 4 years. Would a tent be considered a ppod. Bet the ato never thought of this scenario.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,989
    Location:
    Sydney
    There is actually a case along these lines. I think the tent man lost because it was not considered a dwelling main due to there being no occupancy certificate.
     
  4. datto

    datto Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,392
    Location:
    Mt Druuiitt
    Dang. I thought I was onto something.
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,384
    Location:
    Sydney
    Caravan may not work either. A council occupation certificate is often the base test for whether a RESIDENCE exists. It is called the main residence exemption for a good reason. I recall a AAT case where the taxpayer was OK for the caravan as council permitted it for on site occupation during the build and the taxpayer and family did occupy it as a MAIN residence. But others have also lost (many)

    And to clarify on Terry original post re the 4 years. The Main Res exemption can only apply from that date of the residence test and not when it was acquired. A two limb test of sorts.
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,384
    Location:
    Sydney
    There was a good case where taxpayer owned (dump) dwelling and then purchased next door. Intent was to occupy the dump and then new build and use whole site as main residence and finally demo dump for the carpark and tennis.

    They met all tests for whole site to be eligible. Lesson = Good advice early to ensure compliance
     
  7. Rob G

    Rob G Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    168
    Location:
    Melbourne
    s.118-115 Meaning of dwelling

    It is an inclusive definition - meaning that any reasonable interpretation of what would be treated as a 'dwelling'.

    It also specifically includes a caravan, houseboat or other mobile home.

    However, it is not limited to those examples.
     
    datto likes this.
  8. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

    Joined:
    24th Jun, 2015
    Posts:
    227
    Location:
    Philippines
    datto likes this.
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,989
    Location:
    Sydney
    Paul, I don't get what you mean here. Could you please clarrify?
     
  10. Rob G

    Rob G Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    168
    Location:
    Melbourne
    Ownership interest for main residence exemption is from settlement to settlement.

    Separate from rules about acquisition of assets in Div 109.
     
    Terry_w likes this.
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,384
    Location:
    Sydney
    A CGT asset may be purchased but it does not qualify as a main residence until it is occupied and satisfy the main res exempton. Common example is vacant land intended to have a home build. It is not a residence until one is constructed, given a occ cert and also occupied as a residence.

    Mirrors Robs view
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,384
    Location:
    Sydney
    The tax aspects dont require the suggestive cultural / racist tone assoc with Alice Springs not depicted in the link . Deletion better than defence. The suggestion that recreational tents are a residence isnt excuse. There is No main dwelling exemption.
     
    Last edited: 19th Mar, 2016
  13. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

    Joined:
    24th Jun, 2015
    Posts:
    227
    Location:
    Philippines
    The term 'dwelling' is defined in section 118-115 of the ITAA 1997. Examples of a dwelling are:

    • a home or cottage;
    • an apartment or flat
    • a caravan, houseboat or other mobile home
    Other similar dwellings that are used wholly or mainly for residential accommodation will also meet the definition in section 118-115 of the ITAA 1997 (Taxation Determination TD 92/158). Generally, the definition of dwelling relates to a single unit of accommodation.

    TD 92/158 talks about tents and says "

    A Tent

    4. In most circumstances, a tent will not be regarded as a substantial structure within the scope envisaged by the definition of 'dwelling' in section 118-115 of the ITAA 1997. As the definition connotes a substantial permanent structure, a tent would usually not satisfy this requirement.

    If you had looked at the website and link you would see the structures at Longitude are substantial and permanent. Could even possibly be classified as a mobile home.

    So i would think you could strongly argue if you built something similar on your property you could argue the main residence exemption as it would potentially be a dwelling.

    Why you would think that it is racist is truly bizarre. Maybe take some time to look at the link and see whether it would meet the definition of a dwelling than suggest racist overtones which is so far from the purpose it isn't funny.
     
  14. Rob G

    Rob G Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    168
    Location:
    Melbourne
    You don't have to follow a tax ruling.

    Whether a tent is a dwelling is a question of fact.

    There are some very expensive tents set up as permanent structures similar to safari accommodation at various resorts around Australia. Some I have seen in the same place over several years.

    A caravan is not a substantial and permanent structure within the meaning of attachment to the land.

    Any "permanence" including attachment merely means it is intended to remain in place for an extended period - i.e. mere location.

    Otherwise it would be inconsistent with the legislative inclusion of a caravan or mobile home. What about a houseboat, it is moored with a small jetty.