Private ruling: CGT - main residence exemption
Date of advice: 26 June 2026
Published: 17 August 2026
Ruling period: For the income year ended DDMMYYYY
Date scheme commenced: DDMMYYYY

Ruling: Q1: Are you entitled to claim the full main residence exemption and disregard a capital gain or capital loss you made when you disposed of the new dwelling you built at X? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 15-15 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 109-5 | Income Tax Assessment Act 1997 section 112-25 | Income Tax Assessment Act 1997 Subdivision 118-B Facts and circumstances | You purchased a property at X (the Property) on DDMMYYYY as joint tenants for $X. The size of the Property was X square metres which is less than two hectares. | You moved into the Property immediately following settlement on DDMMYYYY. | From YYYY you undertook planning processes to subdivide the original property in two, with the intent to build a new dwelling on the rear block. | You have no property development experience and there was no involvement with a property developer in your case. | On DDMMYYYY, you were approved for a $X bank loan to fund the construction. You also contributed some personal funds. | Following planning and building permits being endorsed, construction of the new dwelling commenced in MMYYYY. | The building and landscaping costs were $X. | Planning permits, drafting and lodgements cost $X and you engaged professional services such as a lawyer, builder and surveyor.to undertake work on your behalf. | Construction was completed in MMYYYY and you moved in immediately and used the new dwelling (Lot 2) as your main residence. | The land was formally subdivided in MMYYYY. The land was not rezoned. | Lot 2 was X square metres which is less than two hectares. | In MMYYYY, you sold the old dwelling (Lot 1) for $X. Minor cosmetic improvements costing approximately $X were made during the ownership period while you lived there. | You lived in Lot 2 for X. | Then, Lot 2 was sold on DDMMYYYY for $X. | Neither dwelling was used for income-producing purposes. | You purchased another property to live in as your main residence in early YYYY.

Reasons for decision: Summary: When you subdivide a block of land for CGT purposes, the original land parcel is divided into two or more separate assets with each resulting block registered with a separate title. Each of the blocks is considered a new asset as per section 112-25 of the Income Tax Assessment Act 1997 (ITAA 1997). To work out a capital gain or capital loss, the date you acquired the subdivided blocks is the date you acquired the original parcel of land. You acquired the original parcel of land when you became its legal owner (section 109-5 of the ITAA 1997). When you sell the new blocks, any profit is treated as a capital gain, or income. The profit will be treated as ordinary income (not a capital gain) under section 6-5 or 15-15 of the ITAA 1997 if both of the following apply: • Your intention or purpose in subdividing was to make a profit, and • The profit was made in the course of carrying on a business, a business operation or commercial transaction. Taxation Ruling TR 92/3 Income Tax: whether profits on isolated transactions are income at paragraph 36 explains that the courts have often said that a profit on the mere realisation of an investment is not income, even if the taxpayer goes about the realisation in an enterprising way. The expression 'mere realisation' is used to contradistinguish a business operation or a commercial transaction carrying out a profit-making scheme ( FC of T v. The Myer Emporium Ltd (1987) 163 CLR 199; 87 ATC 4363; 18 ATR 693 ). If a transaction satisfies the elements set out above, it is generally not a mere realisation of an investment (on capital) and will be considered income. The intention or purpose of the taxpayer (of making profit or gain) referred to in Myer is not the subjective intention or purpose of the taxpayer. Rather, it is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case (paragraph 38 of TR 92/3). Some indicators that may support activities that amount to the mere realisation of a capital asset include: • Minimal works to meet council requirements, • Landowner's minimal degree of involvement in the subdivision, • Land wasn't purchased with an intention to resell at a profit and was only used for private purposes, • Small scale and low complexity, • No previous history of property development. Subdivision 118-B of the ITAA 1997 allows you to ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence. The sale of property is considered to be a CGT event A1 disposal (section 104-10 of the ITAA 1997). The full main residence exemption applies to individuals, where the dwelling is their main residence throughout the entire ownership period, not used to produce assessable income and where the land is 2 hectares or less. | Detailed Reasoning - Application to your circumstances: In your case there was no evidence that your intention or purpose in subdividing was to make a profit and was made in the course of carrying on a business, a business operation or commercial transaction. Once construction was completed you immediately moved into the new dwelling as your main residence and lived there for X. Your activities amount to mere realisation of a capital asset, and you can claim the full main residence exemption for the disposal in the YYYY-YY income year.