Private ruling: Capital Gains Tax - Main Residence Exemption
Date of advice: 1 October 2015
Published: November 2015
Ruling period: Year ended 2015 | Year ending 2016 | Year ending 2017
Date scheme commenced: 1 July 2014

Ruling: Q1: Is your property (Property B) and the adjacent ownership interest in land eligible for the capital gains tax (CGT) main residence exemption? | A1: Yes | Q2: Can you decide which of your two residences to treat as your main residence? | A2: Yes

Relevant facts and circumstances: Property A You purchased a unit in 19XX. You lived in this property from the purchase date until it was sold in 2015. You did not use the land or dwelling to produce assessable income. The property is less than two hectares. Property B You purchased a property in 20XX. You have lived in this property from the purchase date. The property consists of freehold land. The property also includes the right to occupy a residential dwelling on crown land outside the boundaries of the land. The 10 year lease for the dwelling on the crown land was surrendered prior to your purchase of the property however you still retain the right to occupy the dwelling until the 10 year lease finalises. Were you to sell the property the right to occupy the dwelling on crown land would also pass to the new owner. The total land is less than two hectares. You have never used this property to earn assessable income.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110, | Income Tax Assessment Act 1997 subsection 118-110(1), | Income Tax Assessment Act 1997 section 118-120, | Income Tax Assessment Act 1997 section 118-130 and | Income Tax Assessment Act 1997 subsection 118-145(3).

Reasons for decision: Summary: Section 118-100 of the Income Tax Assessment Act 1997 (ITAA 1997) states: You can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence. Under subsection 118-110(1) of the ITAA 1997; you are eligible for the exemption 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 118-120 of the ITAA 1997 provides the principles for adjacent land to be eligible for the main residence exemption: • the same CGT event happens to that land or the taxpayer's ownership interest in it. • the adjacent land was used primarily for private or domestic purposes in association with the dwelling. • The maximum area of adjacent land covered by the exemption for the CGT event is 2 hectares, less the area of the land immediately under the dwelling. Ownership interests in land or a dwelling are detailed under section 118-130 of the ITAA 1997. You have an ownership interest when you have a right to occupy land or for a dwelling (that is not a flat or unit) you have a legal or equitable interest in the land, on which it is erected, or a licence or right to occupy it. Subsection 118-145(3) of the ITAA 1997 affirms that if you do not use it to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you cease living in it. Application to your circumstances The crown lease, though surrendered, is considered a right to occupy and is an ownership interest. You can ignore a capital gain or capital loss for the sale of both property B and the adjacent crown land. You are eligible to claim the main residence exemption for property B. As you have not used either property A or B to produce assessable income you are entitled to decide which to claim as your main residence. You can only claim one property as your main residence for a period of time.