Private ruling: CGT - compulsory acquisition
Date of advice: 2 February 2026
Published: 30 March 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the acquisition of the Replacement Property to replace the Original Property used as your main residence, satisfy the same or similar purpose requirement of subsection 124-75(4) of the Income Tax Assessment Act 1997 for the purposes of the compulsory acquisition rollover? | A1: Yes

Relevant facts and circumstances: You owned a property as joint tenants, comprising more than 2 hectares and located in Australia (Original Property), from DDMMYYYY. The Original Property was used as your main residence with the adjacent land used as vacant land for private and domestic purposes only. The Original Property has never been used, installed or in the process of being installed ready for use in a business carried on by you. The state government compulsorily acquired the Original Property from you with a contract of sale signed on DDMMYYYY. You received $X from the state government in full satisfaction of all claims arising from the acquisition. The compulsory acquisition of the Original Property by the state government will satisfy the requirements of section 124-70(1). You purchased a property comprising XX hectares in Australia (Replacement Property) on DDMMYYYY. You use the Replacement Property as your main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997, section 100-20 | Income Tax Assessment Act 1997 , section 104-10 | Income Tax Assessment Act 1997, Subdivision 124-B | Income Tax Assessment Act 1997, subsection 124-70 | Income Tax Assessment Act 1997, subsection 124-75 | Income Tax Assessment Act 1997, subsection 124-85 | Income Tax Assessment Act 1997, subsection 995-1(1)

Reasons for decision: Summary: Capital gains and losses Section 100-20 states that you can make a capital gain or loss only if a CGT event happens. Section 104-10 states that CGT event A1 occurs if you dispose of an asset, whether because of some act or event or by operation of law. The capital gain or loss is made at the time of the event. You involuntarily disposed of the property you owned on DDMMYY because it was compulsorily acquired by a statutory authority triggering CGT event A1. Main residence exemption Under the main residence exemption in Subdivision 118-B, a capital gain or loss from a CGT event is disregarded if it relates to a dwelling that was your main residence throughout your ownership. The exemption can also extend to adjacent land associated with the dwelling, provided the conditions in section 118-120 are satisfied, namely: • the same CGT event must occur to the adjacent land (or your ownership interest in it) as occurs to the dwelling (or your ownership interest in it) (subsection 118-120(1)) • the adjacent land must have been used primarily for private or domestic purposes in association with the dwelling (subsection 118-120(2)) • the maximum area covered by the exemption for the CGT event is 2 hectares, reduced by the area of land immediately under the dwelling (subsection 118-120(3)). Subdivision 118-B operates automatically and section 118-250 ensures that where any of that exempt land is compulsorily acquired, the main-residence exemption continues to apply to that eligible portion before any other CGT rules are considered. Taxation Determination TD 1999/67 Income tax: capital gains: if your land (including land on which your dwelling is situated) exceeds 2 hectares, can you select which 2 hectares the main residence exemption in Subdivision 118-B applies to and, if so, how do you calculate any capital gain or capital loss you make on the remainder of your land? provides guidance where the land exceeds 2 hectares, confirming that you may choose which 2 hectares receive the exemption. Any remaining land must be reasonably apportioned, using either a valuation-based method or, if valuation is not feasible, an area-based method. Subdivision 124-B - Asset compulsorily acquired Roll-over relief under Subdivision 124-B is available for the compulsory acquisition of the non-main residence land exceeding the 2-hectare exemption (Non-MRE land), provided the conditions in that Subdivision are met. Where you own a CGT asset that is compulsorily acquired by an Australian government agency, you can choose rollover relief if you meet all the conditions for the rollover (paragraph 124-70(1)(a)). As the owner of the original asset, you must receive money, another CGT asset, or both as compensation for the CGT event happening (subsection 124-70(2)). If money is received for the CGT event, additional conditions under section 124-75 apply. Specifically, you must: • use the money to acquire another CGT asset (excluding depreciating assets whose decline in value is calculated under Division 40 or deductions calculated under Division 328) (paragraph 124-75(2)(a)), and • incur at least some of the expenditure: (a) no earlier than one year before the event happens; or (b) no later than one year after the end of the income year in which the event happens; or (c) within a longer period allowed by the Commissioner in special circumstances (subsection 124-75(3)). Requirements if you acquire another asset Under subsection 124-75(4), there are two alternative requirements that can be satisfied if you acquire another asset: • Business Use Requirement The replacement CGT asset must be used in your business or be installed ready for use in the business. • Same or Similar Purpose Requirement The other asset must be used for the same purpose as, or for a similar purpose to, the purpose for which you used the original asset. Taxation Determination TD 2000/41 Income tax: capital gains: are the two requirements in subsection 124-75(4) of the Income Tax Assessment Act 1997 for a CGT asset acquired to replace an original asset alternative and mutually exclusive requirements? (TD 2000/41) confirms that these two requirements are alternative and mutually exclusive. Note 2 of TD 2000/41 also states: There is no restriction on the number of CGT assets which may be treated as replacement assets for an original CGT asset in the replacement-asset roll-over provisions in Subdivision 124-B provided that they each satisfy the relevant requirements of that Subdivision. As the Non-MRE land was not being used for a productive or business purpose at the time of the compulsory acquisition, the second requirement of 'same' or 'similar' purpose must be satisfied for the relief available under subsection 124-75(4) to apply. Additionally, this replacement asset cannot become an item of trading stock just after the acquisition or be a depreciating asset (subsection 124-75(5)), nor become a 'registered emissions unit' just after the acquisition (subsection 124-75(6)). Same or similar purpose The terms 'same' and 'similar' are not defined in the Income Tax Assessment Act , guidance may be drawn from the ordinary meaning of the terms. The Macquarie Dictionary (Macquarie Dictionary Online, 2025) defines: • 'same' to mean, 'identical with what is about to be or has just been mentioned...' and • 'similar' to mean, 'having likeness or resemblance, especially in a general way'. Taxation Determination TD 2000/42 Income tax: what is the scope of the words 'use the other asset ... for the same purpose ... or for a similar purpose' in subsection 124-75(4) of the Income Tax Assessment Act 1997 in relation to a replacement asset? (TD 2000/42) provides guidance on using a replacement asset for the same or a similar purpose in the context in subsection 124-75(4). Specifically, TD 2000/42 states that whether an asset is used for the same or similar purpose as another asset is a question of fact and degree. TD 2000/42 illustrates that there is no requirement for the replacement asset to be a similar asset, it must merely be used for the same or a similar purpose. At example 3: Marina owns a house near the sea which she has always rented out. The house has, for capital gains purposes, been treated as an asset separate from the land on which it is situated - the land having been acquired in 1980 - because of the operation of Subdivision 108-D. The house is destroyed by a cyclone and she has the choice of either: (a) acquiring a city unit for rental purposes; or (b) rebuilding the house to use as her main residence. For the purposes of Subdivision 124-B, the use of the city unit will fall within the scope of the same or similar purpose test. The use of the new building as a main residence will not. Based on the above example, the 'same or similar' purpose test should be satisfied where one income producing asset held on capital account is compulsorily acquired, and another income producing asset that is also held on capital account is acquired as the replacement. In contrast, the similar purpose test would not be satisfied where an income producing asset was compulsorily acquired, but the taxpayer acquired an asset which became their main residence. The distinction is that in the first example, both assets would be subject to income tax upon disposal, whereas in the second example, where the replacement asset is a main residence, the subsequent sale should be tax-free (due to the CGT main residence exemption). The overall object of the requirement in subsection 124-75(4) is to ensure that taxpayers cannot reduce or eliminate income tax by acquiring a replacement asset that is subject to differing taxing outcome in the event of a subsequent sale. Extent of roll-over relief when money is received Section 124-85 sets out how much of the capital gain can be deferred when you receive money for a compulsory acquisition and choose roll-over relief. If you spend an amount on qualifying replacement assets that is equal to or greater than the money you received, the entire capital gain is disregarded. If you spend less than the amount received, only the difference between the money received and the amount spent is included in your assessable income. This ensures that any part of the compensation not reinvested in replacement assets is taxable, while the remainder is deferred under the roll-over provisions. | Detailed Reasoning - Application to your circumstances: Main residence exemption The capital gain arising from the compulsory acquisition of your main residence is automatically disregarded under Subdivision 118-B, as the dwelling was your main residence throughout your ownership period (section 118-110). The exemption also extends to adjacent land used primarily for private or domestic purposes up to a maximum of 2 hectares (subsection 118-120(3)). Because the entire property was used primarily for private purposes, you may choose any 2 hectares, including the dwelling and the most valuable domestic-use land to be fully exempt under Subdivision 118-B. Subdivision 124-B - Compulsory acquisition The land in excess of the 2-hectare limit cannot be covered by the main residence exemption and is instead treated as a separate CGT component. Under TD 1999/67, the excess land must have its capital proceeds and cost base reasonably apportioned using either a valuation-based or area-based method. As the excess land was compulsorily acquired, Subdivision 124-B applies to that portion. Rather than recognising a capital gain immediately, you are entitled to a replacement-asset rollover for the taxable portion. You must still apportion the capital proceeds and cost base between the exempt 2 hectares (disregarded under Subdivision 118-B), and the excess land (eligible for rollover under Subdivision 124-B). This apportionment determines the amount of compensation attributable to the excess land and therefore the amount of deferred capital gain that is carried into the replacement asset under Subdivision 124-B. Eligibility for Subdivision 124-B rollover The Non-MRE land satisfies the following conditions for the Subdivision 124-B rollover because: • the Original Property was compulsorily acquired by an Australian government agency on DDMMYYYY (paragraph 124-70(1)(a)) • money was received as compensation for the compulsory acquisition (paragraph 124-70(2)(a)) • you acquired a Replacement Property on DDMMYYYY which is within one year before the compulsory acquisition and therefore within the required timeframe (paragraph 124-75(2)(a) and subsection 124-75(3)). • the Replacement Property satisfies subsection124-75(5) and 124-75(6) as it is not: o a depreciating asset o trading stock; or o a registered emissions unit. Same or similar purpose test As the Non-MRE land was not used, installed ready for use, or being installed ready for use in a business immediately before the compulsory acquisition, the relevant limb of subsection 124-75(4) is the 'same' or 'similar' purpose test. The key consideration is whether, for a reasonable time after acquisition, you will use the Replacement Property in the same or a similar way as you used the Original Property just before the event. Determining this is a matter of fact and degree (see TD 2000/41). Immediately prior to the compulsory acquisition, the excess land was used solely for private/domestic purposes and not for any business, investment, income-producing, subdivision, or profit-making purposes. The Replacement Property consists of your main residence and less than 2 hectares of surrounding land. You have moved into it, use it exclusively as your main residence, and have no intention of deriving income or conducting commercial activities. Accordingly, the Replacement Property is used for a similar private/domestic purpose, and the requirement in s 124-75(4) is satisfied. Extent of roll-over relief when money is received To fully defer the capital gain where compensation is money, your replacement asset expenditure must be equal to or greater than the compensation received within the statutory timeframe. If the expenditure is less, the shortfall crystallises as an immediate capital gain under s 124-85. As confirmed in TD 2000/41, multiple CGT assets may be treated collectively as replacement assets as there is no requirement for a one-to-one correspondence between the original asset and the replacement asset. | Detailed Reasoning - Conclusion: The acquisition of the Replacement Property, which you use as your main residence, satisfies the 'same' or 'similar' purpose requirement in subsection 124-75(4) and meets the conditions for acquiring a replacement CGT asset for the purposes of the Subdivision 124-B roll-over.