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Re: Downsizer contribution eligibility

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Does the 10 year home ownership eligibility rule for downsizer contributions start when you purchase a block of land to build your home on, or is it when home construction is completed? 

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ATO Certified Response

Devotee Registered Tax Practitioner

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Yes  -  see   https://www.ato.gov.au/law/view/document?DocID=COG/LCR20189/NAT/ATO/00001&PiT=**TFN removed**35958

 

Ten-year ownership test - interest in the land

31. As stated in paragraph 21 of this Ruling, the 10-year holding requirement can relate to the land on which the dwelling is situated which allows for cases where a property is knocked down and another is built in its place, or where a dwelling is built on a vacant block.[30]

32. In these circumstances, an individual must have owned an interest in the land for at least 10 years prior to the disposal of the dwelling interest. All other requirements, including that the disposal must relate to a dwelling and that the main residence requirement is satisfied, continue to apply.

33. Where the land on which the dwelling is situated has been subdivided within the last 10 years, the 10-year ownership test may also still be satisfied.

34. An ownership interest in the land is deemed to have been held for the period from its commencement, generally settlement for the contract to purchase, until the settlement for the contract for sale.

35. Subdividing land does not necessarily give rise to a CGT event, it merely splits the interest into separate assets in their own right.[31] An ownership interest in the land on which the dwelling is situated is treated as being held from the time that the ownership interest in the original parcel was first held.[32]

36. Where a subdivision has occurred, it is important to note that the ownership interest in a dwelling requirement and the main residence exemption requirement must be satisfied for the contribution to be eligible to be treated as a downsizer contribution. These requirements will not be satisfied where you dispose a subdivided interest in land on which the dwelling is not situated unless:

 

· the interest is adjacent land for the purposes of section 118-120, and · you dispose of the interest to the same person and at the same time as you dispose of the interest on which the dwelling is situated.[33]

 

 

Example 3 - vacant block purchased

37. Akira purchased a vacant block of land in 2010 when she was aged 58. In 2017 she built a dwelling on the property and resided in that property for four years, treating that property as her main residence for CGT purposes.

38. In 2021 Akira sold the dwelling and is able to partially disregard the resulting capital gain made upon this disposal. Akira is able to make a downsizer contribution as she satisfies the 10-year ownership test even though at the time she purchased the property it did not have a dwelling on it.

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Most helpful response

ATO Certified Response

Devotee Registered Tax Practitioner

Replies 1

Yes  -  see   https://www.ato.gov.au/law/view/document?DocID=COG/LCR20189/NAT/ATO/00001&PiT=**TFN removed**35958

 

Ten-year ownership test - interest in the land

31. As stated in paragraph 21 of this Ruling, the 10-year holding requirement can relate to the land on which the dwelling is situated which allows for cases where a property is knocked down and another is built in its place, or where a dwelling is built on a vacant block.[30]

32. In these circumstances, an individual must have owned an interest in the land for at least 10 years prior to the disposal of the dwelling interest. All other requirements, including that the disposal must relate to a dwelling and that the main residence requirement is satisfied, continue to apply.

33. Where the land on which the dwelling is situated has been subdivided within the last 10 years, the 10-year ownership test may also still be satisfied.

34. An ownership interest in the land is deemed to have been held for the period from its commencement, generally settlement for the contract to purchase, until the settlement for the contract for sale.

35. Subdividing land does not necessarily give rise to a CGT event, it merely splits the interest into separate assets in their own right.[31] An ownership interest in the land on which the dwelling is situated is treated as being held from the time that the ownership interest in the original parcel was first held.[32]

36. Where a subdivision has occurred, it is important to note that the ownership interest in a dwelling requirement and the main residence exemption requirement must be satisfied for the contribution to be eligible to be treated as a downsizer contribution. These requirements will not be satisfied where you dispose a subdivided interest in land on which the dwelling is not situated unless:

 

· the interest is adjacent land for the purposes of section 118-120, and · you dispose of the interest to the same person and at the same time as you dispose of the interest on which the dwelling is situated.[33]

 

 

Example 3 - vacant block purchased

37. Akira purchased a vacant block of land in 2010 when she was aged 58. In 2017 she built a dwelling on the property and resided in that property for four years, treating that property as her main residence for CGT purposes.

38. In 2021 Akira sold the dwelling and is able to partially disregard the resulting capital gain made upon this disposal. Akira is able to make a downsizer contribution as she satisfies the 10-year ownership test even though at the time she purchased the property it did not have a dwelling on it.

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Newbie

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Thank you Bruce4Tax