Private ruling: Main residence exemption
Date of advice: 30 September 2025
Published: 24 November 2025
Date scheme commenced: XX July 202X.

Ruling: Q1: Are you entitled to the main residence exemption for the sale of the Property for 2 hectares out of the total X hectares? | A1: Yes. This private ruling applies for the following period: Year ending X June 20XX. The scheme commenced on: XX July 202X.

Relevant facts and circumstances: You and your former spouse purchased a block of land on X July 19XX. The block of land was over 2 hectares. You built a house (the dwelling) on the Property on X September 19XX and moved in. You and your former spouse had two children together by the year 20XX and subsequently extended the dwelling and installed a swimming pool on the Property. You and your former spouse divorced on X August 20XX. You remortgaged the Property to purchase your former spouse a separate property. You retained ownership of the Property. You resided in the Property as your main residence throughout your ownership period. On X July 20XX you sold the Property. Settlement of the sale of the Property occurred on X August 20XX. The entire Property was sold in one transaction. The Property was only ever used to raise your family and was never used for income producing purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-115 | Income Tax Assessment Act 1997 section 118-120

Reasons for decision: Summary: The Property on which the dwelling is situated cannot be fully disregarded for capital gains tax (CGT) purposes. You may elect to apply the main residence exemption to any 2 hectares of the Property, including the land immediately beneath the dwelling. There is no discretion available to the Commissioner to allow the main residence exemption to be applied to more than 2 hectares of land. | Detailed Reasoning - Detailed reasoning: Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for the full main residence exemption, the dwelling must have been your main residence for the whole period you owned it and must not have been used to produce assessable income. The meaning of 'dwelling' is contained in section 118-115 of the ITAA 1997 which operates to include the unit of accommodation and any land immediately under the unit of accommodation. The Australian Taxation Office has interpreted what constitutes the 'land immediately under the accommodation' narrowly to mean the physical footprint of the dwelling, not the surrounding land, even if it is on the same title. | Detailed Reasoning - Adjacent land: Section 118-120 of the ITAA 1997 operates to extend the aforementioned main residence exemption to land adjacent to the dwelling provided it was used primarily for private or domestic purposes. The maximum area of adjacent land covered by the exemption for the CGT event is 2 hectares, including the dwelling and land immediately beneath it. Where land, including the land on which the dwelling is situated, exceeds 2 hectares, you can elect to apply the main residence exemption available in subdivision 118-B of the ITAA 1997 to whichever area of land chosen. Subsection 118-120(2) of the ITAA 1997 operates to limit the maximum area chosen to 2 hectares, including the land on which the dwelling is situated. 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? further stipulates that the land chosen to apply the exemption to must have only been used for private or domestic purposes. | Detailed Reasoning - Application to your circumstances: The Property you sold on X July 20XX had a total land area of XX hectares. It was not used for income-producing purposes and served as your main residence throughout your entire ownership period. The dwelling and surrounding land were used primarily for private purposes, specifically to raise your family. There is no discretion available to the Commissioner to extend the main residence exemption to the entire XX hectares of land on which the dwelling is situated. However, as the land adjacent to your dwelling was not used for income producing purposes and was sold in the same transaction as the sale of the dwelling, you may elect to apply the main residence exemption to any 2 hectares of the property, including the land immediately beneath the dwelling. As you owned the property for more than 12 months, you are eligible for the 50% CGT discount on any capital gain attributable to the non-exempt or taxable portion of the land (X hectares).