Private ruling: Capital Gains Tax - Main residence - adjacent land - disposal
Published: August 2013
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2013

Ruling: Q1: Will any capital gain made on the disposal of your dwelling be disregarded? | A1: Yes. | Q2: Does the main residence exemption extend to all adjacent land? | A2: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 118-110(1) | Income Tax Assessment Act 1997 Subsection 118-120(1) | Income Tax Assessment Act 1997 Subsection 118-120(2) | Income Tax Assessment Act 1997 Subsection 118-120(3)

Reasons for decision: Detailed Reasoning - Main Residence: A capital gain or capital loss you make from a capital gains tax (CGT) event that happens to a dwelling that is your main residence is disregarded if: · you are an individual, and · the dwelling was your main residence throughout your ownership period the property was not used to produce assessable income | Detailed Reasoning - Extension of exemption to adjacent land: Land adjacent to a dwelling is exempt from CGT under the main residence exemption to the extent that it was used primarily for private or domestic purposes in association with the dwelling. To be eligible for the exemption: 1. the land, including the land on which the dwelling is built, must be two hectares or less; 2. the same CGT event must happen to the land and to the dwelling, or the taxpayer's ownership interest in it; and 3. the land must have been used primarily for private or domestic purposes in association with the dwelling. Land is adjacent to your dwelling if it is close to, near, adjoining or neighbouring the dwelling. The application of the extension of the exemption to adjacent land is determined at the time of any CGT event which happens to the dwelling. When determining the application of the CGT provisions, it is the extent to which you used the adjacent land primarily for private or domestic purposes in association with that dwelling throughout the lands entire ownership period that is relevant. The words to the extent contemplate an apportionment, if for some part of the ownership period that the land has not been used primarily for private or domestic purposes in relation to that dwelling. It is viewed that the land has not been used primarily for private or domestic purposes in association with the new dwelling for the entire period you have owned the land. Therefore, you are not entitled to the full main residence exemption on the adjacent land.

Relevant facts: You purchased a property after 20 September 1985 and which you use as your main residence. | You will build a separate dwelling on the property which you will rent out. | The new dwelling will be separate from your main residence. | The new dwelling will be fenced off from the main residence and the tenants will have exclusive possession. | The new dwelling will be relocatable and when you sell your main residence you will relocate the new dwelling to your new residence. | You will make a capital gain when you sell the property after a number of years.