Ask Margaret: Is there a time limit to build on land before CGT applies?

Hi Margaret,

My partner brought a block of land in 2011.

We were wondering whether we have a limited time to build a home before capital gains tax (CGT) is applicable to us?

Thanks in advance,

Ryan

Hi Ryan,

I am assuming that you purchased this block of land with the intent to build a property in which you will personally live, rather than build a property as an investment.  If it is to build as an investment, then of course CGT is going to apply immediately from the date of your contract to buy.

If you bought to build a house of your own on, the tax office has this to say:

"Generally, if you build a dwelling on land you already own, the land does not qualify for exemption until the dwelling becomes your main residence for capital gains tax (CGT) purposes.

"Vacant land may also be treated as your main residence if it is vacant because your home has been destroyed.

"However, you can choose to treat land as your main residence for up to four years before the dwelling becomes your main residence in certain circumstances. You can choose to have this exemption apply if you acquire an ownership interest (other than a life interest) in land and you:

• "Build a dwelling on the land
• "Repair or renovate an existing dwelling on the land, or
• "Finish a partly constructed dwelling on the land.

"There are a number of conditions that you must satisfy before you can claim the exemption. You must first finish building, repairing or renovating the dwelling and then:

• "Move into the dwelling as soon as practicable after it is finished, and continue to use the dwelling as your main residence for at least three months after it becomes your main residence."

Reading this it would appear that, as long as you do not own another property on which you are also claiming the principal place of residence exemption, you have four years to have the house ready to move into.  

Make sure you check with your accountant to see how this might apply to you though, as your personal circumstances may be very different.

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