Private ruling: Capital gains tax
Date of advice: 7 December 2016
Published: May 2017
Ruling period: Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you entitled to claim the main residence exemption to adjacent land up to the period when the main residence was sold? | A1: No.

Relevant facts and circumstances: In 20WW you purchased a property with a dwelling and adjacent land, with a total combined area less than two hectares. The dwelling became your main residence for your entire ownership period. You used the adjacent land as an extension of your main residence, with an access gate between both properties. In 20XX you sold the dwelling. You applied the main residence exemption to the capital gains from this sale. You were unable to sell the adjacent land with the dwelling. In 20YY you sold the adjacent land.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-120 | Income Tax Assessment Act 1997 section 118-165

Reasons for decision: Summary: Capital gains tax (CGT) event A1 happens when you dispose of a CGT asset, as established in Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 118-120 of the ITAA 1997 specifies that the main residence exemption can extend to adjacent land where: ● The same CGT event happens to both the land and the dwelling ● The land was used primarily for private or domestic purposes in association with the dwelling. ● The total combined area for the dwelling and adjacent land is less than two hectares. Section 118-165 of the ITAA 1997 states: The exemption does not apply to a CGT event that happens in relation to land, or a garage, storeroom or other structure, to which the exemption can extend under section 118-120 (about adjacent land) if that event does not also happen in relation to the dwelling. Application to your circumstances In this case, there are two separate CGT disposal events, the first when the dwelling was sold, and the second when the adjacent land was sold. There is no provision to apply the main residence exemption proportionally for the period that you owned the adjacent land until you sold the dwelling. As the CGT disposal events were separate, the main residence exemption cannot be extended to include the adjacent land.