Private ruling: CGT - main residence
Date of advice: 9 April 2026
Published: 29 June 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 20XX

Ruling: Q1: Can any capital gain you make from the sale of Property A be disregarded under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Can any capital gain you make from the sale of Property B be disregarded under section 118-110 of the ITAA 1997 on the basis it was considered the same dwelling as Property A prior to the split? | A2: No. | Q3: Can you get a partial exemption for any capital gain arising from the sale of Property B under section 118-185 of the ITAA 1997? | A3: No. | Q4: Can you apply the capital gains tax 50% discount in accordance with Subdivision 115-A of the ITAA 1997 on any capital gain arising from the sale of Property B? | A4: Yes. | Q5: Can you include 100% of the costs of separation in the cost base of Property B under section 110-25 of the ITAA 1997? | A5: No, the costs of separation must be apportioned.

Relevant facts and circumstances: You and your spouse own Property A which is your primary place of residence. Property A has been your main residence: • from settlement date until DDMM 20XU • From DDMM 20XV until DDMM 20XW • From DDMM 20XW until DDMM 20XX. Property A was rented from DDMM 20XU to DDMM 20XV and from DDMM 20XW to DDMM 20XW. During the times Property A was rented you continued to treat it as your main residence. You then purchased Property B for the purpose of combining both properties as a single primary place of residence for your family. Planning approval was sought immediately following the purchase of Property B and capital works were carried out upon receipt of planning approval. You used Property B as the main residence immediately after acquisition and the works was completed while living in the property. You and your family used both properties as a single residence until recently. You obtained private ruling authorisation number XXXXXXXXXXXXX, in which the Commissioner agreed that Property A and Property B qualified as a single dwelling for the purposes of section 118-115 of the ITAA 1997. You have now purchased a new property to move into as your new main residence. To make Property A and Property B marketable, you were advised to sell them separately, on the basis that it would not be possible to sell as one dwelling. You separated the dwelling into two smaller properties. You have done the required works and have sold Property A in MM 20XX, whilst Property B remains unsold. You have provided details of the costs incurred for the separation works.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-185 | Income Tax Assessment Act 1997 Subdivision 118-B | Income Tax Assessment Act 1997 Subdivision 115-A | Income Tax Assessment Act 1997 section 110-25

Reasons for decision: Summary: Any capital gain you make from the sale of Property A can be disregarded under section 118-110. | Detailed Reasoning - Detailed reasoning: Section 102-20 states that a capital gain or capital loss is made when a CGT event happens to a CGT asset you own. Subsection 118-110(1) provides that: A capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if: (a) you are an individual; and (b) the dwelling was your main residence throughout your ownership period; and (c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. Section 118-125 states that: The ownership period of a dwelling is the period on or after 20 September 1985 when you had an ownership interest in: (a) the dwelling; or (b) land (acquired on or after 20 September 1985) on which the dwelling is later built. Subsection 118-145(1) provides that if a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence. This is sometimes referred to as 'the absence choice'. Subsection 118-145(2) provides that if you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. Property A was your main residence from settlement date until DDMM 20XU, from DDMM 20XV until DDMM 20XW and from DDMM 20XW until MM 20XX. When the property was rented from DDMM 20XU to DDMM 20XV and from DDMM 20XW to DDMM 20XW, you continued to treat it as your main residence. Consequently, any capital gain that you make from the sale of Property A may be disregarded under section 118-110. | Summary: No capital gain you make from the sale of Property B can be disregarded under section 118-110 on the basis that it was considered the same dwelling as Property A prior to the separation. You cannot get a partial exemption for any capital gain arising from the sale of Property B under section 118-185, as the sale of Property B will be a be the result of a separate CGT event to the sale of Property A. | Detailed Reasoning - Detailed reasoning: Before Property A and Property B were separated, they were considered to be a single dwelling for the purposes of section 118-115. You undertook works to separate them so that they could be sold separately. Property A has been sold, and Property B remains unsold. As explained previously, one of the conditions in section 118-110 is that the capital gain you make from a CGT event happening in relation to a CGT asset that is a dwelling is disregarded if the dwelling was your main residence throughout the ownership period. Subsection 118-145(4) provides that if you make the choice, you cannot treat any other dwelling as your main residence while you apply this section, except if section 118-140 (about changing main residences) applies. If you choose to disregard any capital gain arising from the sale of Property A on the basis that it was your main residence throughout the ownership period, you cannot choose to apply the main residence exemption under section 118-110 on any capital gain arising from the sale of Property B. Subsection 118-185(1) provides that: You get only a partial exemption for a CGT event that happens in relation to a dwelling or your ownership interest in it if: (a) you are an individual; and (b) the dwelling was your main residence for part only of your ownership period; and (c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. The meaning of dwelling is provided in section 118-115. A dwelling includes: (a) a unit of accommodation that: ­ is a building or is contained in a building; and ­ consists wholly or mainly of residential accommodation; and (b) a unit of accommodation that is a caravan, houseboat or other mobile home; and (c) any land immediately under the unit of accommodation. The extension of Property A to include Property B as the same dwelling, is analogous to the inclusion of a dwelling's adjacent land as the dwelling. Where the conditions in section 118-120 are met, the main residence exemption can extend to include that adjacent land. However, section 118-165 provides that: 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 or your ownership interest in it. Paragraph 7 of Taxation Determination TD 1999/68 Income tax: capital gains: is 'adjacent' land in terms of section 118-120 of the Income Tax Assessment Act 1997 limited to land contiguous to a dwelling? provides an example of where the same CGT event does not happen to the sale of the main residence and the additional land: The main residence exemption does not apply to a CGT event that happens in relation to adjacent land if the event does not happen in relation to the dwelling or your ownership interest in it: see section 118-165. If you dispose of adjacent land to the same person and at the same time as you dispose of your main residence, the exemption extends to the adjacent land. It does not extend to adjacent land, however, if you dispose of the land separately from the main residence, e.g., you dispose of the adjacent land to the same purchaser but at a different time from when you dispose of the main residence or you dispose of the adjacent land and the main residence to different purchasers even if the disposals happen at the same time. Property A was sold in MM 20XX, and Property B remains unsold. Any capital gain from the sale of Property B will be the result of a separate CGT event to the sale of Property A. Consequently, the partial exemption in section 118-185 will not apply to any capital gain from the sale of Property B. | Summary: You can apply the capital gains tax 50% discount in accordance with Subdivision 115-A on any capital gain arising from the sale of Property B, as you meet the requirements of sections 115-10, 115-15, 115-20 and 115-25. | Detailed Reasoning - Detailed reasoning: Subdivision 115-A provides the general CGT discount of 59% can be applied to a capital gain that meets the requirements of sections 115-10, 115-15, 115-20 and 115-25. Those requirements are that: • you are an individual, a trust or a complying superannuation entity, • a capital gains tax (CGT) event happens to an asset you own, • the CGT event happened after 11.45am (by legal time in the Australian Capital Territory) on 21 September 1999, • you acquired the asset at least 12 months before the CGT event, and • you did not choose to use the indexation method. When you sell Property B, you will be able to reduce any capital gain by 50% as you meet all of the above conditions. | Summary: You cannot include 100% of the costs of separation in the cost base of Property B, rather you should apportion costs where they are attributable to both properties. | Detailed Reasoning - Detailed reasoning: Section 110-25 provides the general rules about cost base. Subsection 110-25(5) provides that: The fourth element is capital expenditure you incurred: (a) the purpose or the expected effect of which is to increase or preserve the asset's value; or (b) that relates to installing or moving the asset. You incurred cost to separate Property A and Property B in the expectation that it would be easier to sell both properties separately rather than as one property. There would also be an expectation that the value of both properties would be either increased or preserved in comparison to leaving them as one dwelling. Given the impact of the works, it would not be reasonable to include all of the costs incurred in separating Property A and Property B in the cost base for Property B. Guidance on what proportion of the separation costs should be included in the cost base for Property B can be found in Taxation Determination TD 97/3 Income tax: capital gains: if a parcel of land acquired after 19 September 1985 is subdivided into lots ('blocks'), do Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 treat a disposal of a block of the subdivided land as the disposal of part of an asset (the original land parcel) or the disposal of an asset in its own right (the subdivided block)? Paragraph 4 of TD 97/3 explains that: If an original land parcel is split into two or more blocks, and you are the beneficial owner of the original land parcel and each of the new blocks, section 112-25 provides that each element of the cost base and reduced cost base of the original asset (worked out at the time of the split) is apportioned in a reasonable way and included in the corresponding element of the cost base and reduced cost base of each new asset. The following example is also provided: John subdivides his post-CGT land into two new blocks with a view to selling one and retaining the other. He incurs the following costs: survey fees; legal fees; subdivision application fees; and cost of connecting electricity and water only to the subdivided block to be sold. John includes all of these costs in the relevant cost base of the block to be sold. We consider that this is not a reasonable apportionment. It is reasonable to apportion the survey, legal and subdivision application fees over both blocks. If the blocks are of unequal market value, an apportionment of costs in proportion to the market value of the blocks would usually be a reasonable apportionment. As the cost of connecting the electricity and water relates only to the block to be sold, it would be reasonable to attribute this cost solely to the cost base of this block. The costs you incurred that are identified as being attributable to Property B may be included in its cost base, however, costs attributable to both properties should be apportioned between the properties, with only the portion attributable to Property B to be included in its cost base.

Reasons for decision: All references made in these reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise stated.