Private ruling: Capital gains tax - main residence exemption - adjacent land - disposal
Date of advice: 6 October 2015
Published: November 2015
Ruling period: Year ending 30 June
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to claim the main residence exemption on the sale of an adjacent block of land which will be sold in separate transaction, to a different purchaser, to the main residence? | A1: No.

Relevant facts and circumstances: You purchased two blocks of land together: one title had the dwelling and the other had a half sporting facilities. You have always lived on the property, and you consider it your main residence. The total area of the properties is less than two hectares. You have not used the land around the dwelling to produce assessable income. You intend to sell the block of land that holds the sporting facilities separately to the dwelling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Subdivision 118-B | 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) | Income Tax Assessment Act 1997 Section 118-165

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act (ITAA) 1997 states that a capital gain or capital loss is made when a capital gains tax (CGT) event happens to a CGT asset you own. A capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence is disregarded if: • you are an individual; • the dwelling was your main residence throughout your ownership period ; • the property was not used to produce assessable income, and; • any land on which the dwelling is situated is not more than two hectares. Section 118-120 of the ITAA 1997 allows an exemption to include land which is adjacent to a dwelling as part of your main residence provided it is used primarily for private or domestic purposes and the same CGT event happens to the land. Land is adjacent to your dwelling if it is close to, near, adjoining or neighbouring the dwelling ( Mayor of Wellington v. Mayor of Lower Hutt AC 773 at 775-776). The application of the extension to adjacent land is determined at the time of CGT event which happens to the dwelling. Taxation Determination TD 1999/68 discusses what is 'adjacent' land for the purposes of the main residence exemption and states, at paragraph 7: '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'. In your case, you intend to sell the adjacent land in a separate transaction to your main residence. Therefore, you are not entitled to disregard any capital gain or loss made on the sale.