Private ruling: Capital gains tax exemptions
Published: May 2015
Ruling period: Year ending 30 June 2015. | Year ending 30 June 2016.
Date scheme commenced: 1 July 2014.

Ruling: Q1: Are you eligible for the main residence exemption from capital gains tax (CGT) if you sell the rear subdivided block which is your main residence? | A1: Yes. | Q2: Are you exempt from paying any CGT on the sale of your front subdivided block? | A2: Yes.

Relevant facts and circumstances: You purchased your property before 20 September 1985 and commenced living in it as your main residence. After 20 September 1985 you subdivided the block of land into two blocks (the "rear block" and the "front block"). You spent six months building a new dwelling on the rear block of land. You moved from the old front block to the new rear block dwelling in the 200X-0X financial year, and have lived there since. You have claimed no other dwelling as your main residence during this time and the dwelling has never been used to produce assessable income. You began renting the front house shortly after you moved to the new dwelling on the rear block. There has been no renovation or improvements to the front block. You are not in the business of property development.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 108-55(2). | Income Tax Assessment Act 1997 section 112-25. | Income Tax Assessment Act 1997 subdivision 118-B.

Reasons for decision: Detailed Reasoning - Subdivision of land: Section 112-25 of the Income Tax Assessment Act 1997 (ITAA 1997) states that subdivision of land is not a CGT event. If you subdivide a block of land, the CGT provisions treat the subdivided blocks as though they were always separate assets, as each is registered with a separate title. The acquisition date of the subdivided block will be your original purchase date. | Detailed Reasoning - Separate CGT assets: Subsection 108-55(2) of the ITAA 1997 states that a building or structure that is constructed on land that you acquired before 20 September 1985 is taken to be a separate CGT asset from the land if: • you entered into a contract for the construction on or after that day; or • if there is no contract - the construction started on or after that day. | Detailed Reasoning - Main residence exemption: Subdivision 118-B of the ITAA 1997 can disregard a capital gain or capital loss that happens to a dwelling that is a main residence. To get the full exemption from CGT: • the dwelling must have been your home for the whole period you owned it • you must not have used the dwelling to produce assessable income, and • any land on which the dwelling is situated must be 2 hectares or less. | Detailed Reasoning - Application to your circumstances: In your case, both blocks of land maintain the original acquisition date of purchase of the original block prior to 20 September 1985 for CGT purposes. Both blocks of land are therefore pre-CGT assets and accordingly are exempt from CGT. The front block dwelling is also a pre-CGT asset and therefore exempt from CGT, regardless of having rented it out and producing assessable income. The dwelling you built on the rear block is considered a separate post-CGT asset as you built it after 20 September 1985. However, you moved in to the new dwelling in the 200X-0X financial year when construction was completed and this has been your main residence since. This dwelling has never been used to produce assessable income and you have claimed no other residence as your main residence throughout this period. Accordingly the rear block (house and land) is also exempt from CGT.