Private ruling: CGT - main residence exemption
Date of advice: 20 May 2026
Published: 27 July 2026
Ruling period: DD MM YYYY to DD MM YYYY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Can the applicant treat their 2 adjoining properties as their single main residence for the purpose of the capital gains tax (CGT) main residence exemption (MRE) under section 118-115 of the Income Tax Assessment Act 1997 (ITAA 1997) for the relevant period? | A1: Yes, for the relevant period (since the properties were joined from mid-MM YYYY), the applicant's adjoining properties may be treated as a single main residence.

Relevant facts and circumstances: Background Information 1. The applicant purchased Property A, located at AAA on DD MM YYYY. The applicant used Property A as their main residence from that time. The applicant purchased Property A for themself and their x children to live in. 2. The applicant is an Australian resident for tax purposes for the entire period to which this ruling application applies. 3. The applicant's partner purchased the property next door located at BBB (Property B) at the same time on DD MM YYYY. The applicant's partner purchased Property B for themself and their x children to live in. 4. Property A and Property B were not acquired jointly at that time but purchased independently by the applicant and their partner. 5. At the time of purchase in MM YYYY, the adjoining properties were advertised as one single residence, notwithstanding that they comprised 2 adjoining properties. The applicant purchased Property A, and their partner purchased Property B, with the view that they would live separately in each of the properties, while renovating the properties fully into a single family home. 6. At the time of purchase in MM YYYY, Property A and Property B were held on separate titles and were not consolidated under a single title. 7. The applicant purchased the adjoining property, Property B, outright from their partner on DD MM YYYY and became the sole owner of both properties. Property B was then rented out from when it was purchased in MM YYYY through to mid-MM YYYY. 8. As the applicant's children and their partner's children were not happily coexisting, the applicant's partner did not continue to reside at Property B following this transaction, nor begin to reside at Property A. The applicant's partner and their x children moved into a completely separate home. Living Arrangements 9. From MM YYYY, the applicant and their x children resided in Property A, and their partner and their x children resided in Property B, and they lived separately in each dwelling. 10. Mortgage arrangements were paid separately. Utility arrangements were paid separately, consistent with the ownership of each respective property during this period, with the exception that the previous owner had joined water and electricity bills, such that those utility bills were then required to be split between the titles on a 50/50 basis. Proximity of Properties 11. Property A and Property B are directly adjoining terrace dwellings, located immediately next to each other at AAA and BBB. There is no physical separation between the buildings, other than the original internal party wall that historically divided the two terraces. 12. At ground level, the properties are accessed via a single-entry gate and stairs from XYZ Street's front courtyard area, which provides a common entry space consistent with the terrace housing from along XYZ Street, a single back entry gate and courtyard area, which provides a rear entry space from the back lane. There is no independent access to each property and in the event that the two properties were utilised as separate dwellings again, a new entry point at both the front, and also at the rear, would need to be reinstated. Renovation of Property 13. Following the rental period (MM YYYY - MM YYYY), the applicant undertook renovations to physically and functionally integrate the two properties, including: • removing one of the bedrooms which was no longer required and replacing it with a home study that serviced the unified properties • taking over all utility services for the properties • knocking through the wall between the back living rooms to join the houses internally and to create a unified living space • removing the kitchen in one property, such that a single kitchen serviced both properties 14. Since completing the renovations in mid-MM YYYY, the applicant has used both properties (Property A and Property B) as a single residence (the Property). 15. Since the completion of renovations to remove the second kitchen/laundry and internal party wall separating the properties in mid-MM YYYY, the applicant and their x children have been the sole occupants of both properties (now the Property), which are used together as a single residence with fully integrated daily living activities across both dwellings. There is only one laundry, one kitchen, one living area and one dining area that service the integrated properties. 16. Since the properties were integrated into a single residence, all property-related costs have been borne by the applicant, and the properties operate functionally as one residence, including unified service arrangements and mail delivery is to a single mailbox labelled "XX XYZ St" consistent with single-residence use. 17. The applicant's electoral roll registration reflects their occupation of the combined residence at XX XYZ Street, consistent with the properties being used as a single residence. 18. The applicant has applied for and received approval for a Development Application to renovate both properties into a single residence. 19. XYZ Revenue has accepted both properties as the applicant's main residence for land tax purposes, granting exemption on both. 20. The applicant has not used either Property A or B for any other purpose (eg. rental or business) during the "relevant period", being: • AA XYZ Street - since purchase in MM YYYY to current time • BB XYZ Street - since mid-MM YYYY (when rental completed) to current time 21. The applicant will continue to use the Property as a single main residence up until the Property is sold at a future date. 22. The applicant is seeking confirmation that both Property A and Property B may be treated as their single main residence for the relevant period for CGT purposes under section 118-115 of the ITAA 1997. Information provided 23. You have provided a number of documents containing detailed information in relation to the applicant, including: • Private Binding Ruling ('PBR') Application, dated DD MM YYYY • Response to further questions provided DD MM YYYY 24. We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 112-25 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-115 | Income Tax Assessment Act 1997 section 118-120 | Income Tax Assessment Act 1997 section 118-145 | Income Tax Assessment Act 1997 section 118-165 | Income Tax Assessment Act 1997 section 118-185 | Income Tax Assessment Act 1997 section 118-190

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated. The applicant may treat their adjoining properties at AA and BB XYZ Street as their single main residence for the purpose of the capital gains tax (CGT) main residence exemption (MRE) under section 118-115 of the ITAA 1997 for the relevant period (since the properties were joined from mid-MM YYYY). | Detailed Reasoning - DETAILED REASONING: 25. Section 102-20 of the ITAA 1997 provides that you make a capital gain or loss as a result of a CGT event happening to a CGT asset in which you have an ownership interest. 26. Buildings and land are CGT assets as defined under section 108-5 of the ITAA 1997, and the disposal of a CGT asset triggers a CGT event under section 104-10 of the ITAA 1997. The most common event is CGT event A1 which occurs when you dispose of a CGT asset to someone. 27. Subsection 104-10(5) of the ITAA 1997 provides that any capital gain or loss is disregarded if you acquired the asset before 20 September 1985. 28. Section 118-110 of the ITAA 1997 and section 118-115 of the ITAA 1997 provide that a capital gain or loss from a dwelling that was the taxpayer's main residence is generally disregarded for CGT purposes. 29. Specifically, section 118-110 of the ITAA 1997 provides for the basic case as follows: (1) A capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded 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. 30. The term "dwelling" is defined in section 118-115 of the ITAA 1997 and, in certain circumstances, can include more than one unit of accommodation if they are used together as one place of residence. Whether two or more units of accommodation are used together as one place of residence is a question of fact. 31. Specifically, subsection 118-115(1) of the ITAA 1997 defines dwelling as follows: (1) A dwelling includes: (a) a unit of accommodation that: (i) is a building or is contained in a building; and (ii) consists wholly or mainly of residential accommodation; and (b) a unit of accommodation that is a caravan, houseboat or other mobile home; and (c) any land immediately under the unit of accommodation. 32. Section 118-185 of the ITAA 1997 states that if a dwelling is your main residence for only part of your ownership period, you will only get a partial exemption for any gain or loss arising from a CGT event that occurs in relation to that dwelling. The capital gain or loss is calculated using the formula: 33. Taxation Determination 1999/69 Income tax: capital gains: can the term 'dwelling' as defined in section 118-115 of the Income Tax Assessment Act 1997 include more than one unit of accommodation?(TD 1999/69) provides that multiple units may be considered a single dwelling if they are used together as one place of residence or abode. TD 1999/69 lists relevant factors at Paragraph 4, including: • whether the occupants sleep, eat and live in them • the distance between and the proximity of the units of accommodation • whether the units are connected • whether the units are capable of being sold separately • the extent to which the daily activities of the occupants in the units are integrated • how the units are shared by the occupants, and • how costs of the units are shared by the occupants. 34. Paragraph 2 of TD 1999/69 states that the word 'dwelling' is defined in the Macquarie Dictionary as 'a place of residence or abode: a house'. 35. Paragraph 3 of TD 1999/69 outlines that in Campbell v O'Sullivan [1947] SASR 195 at 201, May J stated that: '... "dwelling" ordinarily signifies a place of abode or residence, a tenement, habitation, or house, which premises a person or persons are using as a place for sleeping and usually for the provision of some meals.' 36. Paragraph 6 of TD 1999/69 provides Example 1 which states: Mr. and Mrs. Brown reside with their three children in a suburban house. Mrs. Brown's mother (Dora) resides in a detached granny flat built for her in the backyard. Although the flat is fully self-contained, and Dora eats and sleeps there, Dora's daily life and activities are closely integrated with those of the Browns. She spends considerable time in the main house and family members regularly spend time in Dora's flat. In the circumstances, having regard to the proximity of the flat and the integration of activities, the house and the flat are the Browns' dwelling for the purposes of section 118-115 of the ITAA 1997. 37. In matters such as this, the Commissioner will consider the physical integration of adjoining properties, the use of the properties as a single residence, and the integration of daily life across the properties in determining whether two adjoining properties can be treated as a single main residence for CGT purposes. 38. Where one of the properties is used to produce assessable income (for example, is rented out) and is not the taxpayer's main residence during that relevant period, the main residence exemption will not apply to that property for the relevant period. In accordance with section 118-130 of the ITAA 1997, only one dwelling can be treated as the taxpayer's main residence at any one time. Where a property is not the taxpayer's main residence for the entire period of ownership, the exemption must be apportioned under section 118- 185 of the ITAA 1997, and capital gains tax will apply to the period the property was not the taxpayer's main residence. 39. Accordingly, where two adjoining properties are used together as a single main residence, the main residence exemption can apply to both properties from the time they are integrated and used as one dwelling. Any period during which one property was not the taxpayer's main residence (for example, when it was rented out) will require apportionment of the exemption for that property. | Detailed Reasoning - Application to your circumstances: 40. We note that the applicant accepts that as BB XYZ Street (Property B) was used to produce assessable income (rented out) from MM YYYY through to mid-MM YYYY and was not the applicant's main residence during that time, the main residence exemption will not apply for that period. 41. Only the portion of the ownership period during which BB XYZ Street was used as part of the applicant's main residence, after integration and unified occupation with AA XYZ Street (Property A), may be eligible for the main residence exemption. The capital gain attributable to the rental period (MM YYYY through to mid-MM YYYY) will remain subject to CGT. 42. From mid-MM YYYY onwards, Property A and Property B were combined by the applicant and are regarded as a single unit of accommodation from that time onwards. Therefore, the Property (Property A and Property B combined) are regarded as the applicant's main residence for CGT purposes. This is supported by the following reasons: | Detailed Reasoning - Common Use and Integration: 43. The applicant has taken steps to physically and functionally integrate both properties. This includes removing the dividing fence to create a single yard, integrating electrical and water services, knocking through the wall between the back living rooms, and installing a single kitchen to serve both properties. Renovations included: • removing one of the bedrooms which was no longer required and replacing it with a home study that serviced the unified properties • taking over all utility services for the properties • knocking through the wall between the back living rooms to join the houses internally and to create a unified living space • removing the kitchen in one property, such that a single kitchen serviced both properties 44. Since the completion of renovations in mid-MM YYYY, the applicant and their x children have been the sole occupants of both properties (now the Property), which are used together as a single residence with fully integrated daily living activities across both dwellings. 45. Since the properties were integrated into a single residence, all property-related costs have been borne by the applicant, and the properties operate functionally as one residence, including unified service arrangements, utility connections and mail delivery is to a single mailbox labelled "AA-BB XYZ Street" consistent with single-residence use. 46. The applicant is also registered on the Electoral roll as residing at "AA-BB XYZ St", consistent with single-residence use. | Detailed Reasoning - Unified Occupation of Property: 47. Since the completion of these renovation works, the applicant has used both properties as a single, unified place of residence. There is no separation of daily living activities between the two addresses. | Detailed Reasoning - No Separate Use of Properties: 48. Neither property has been used for any other purpose (such as rental or business) during the relevant period. Both properties have been occupied together as the applicant's single main residence. 49. The electrical and water services have been integrated over the Property. | Detailed Reasoning - Support from State Revenue Authority: 50. XYZ Revenue has accepted both properties together as the applicant's single main residence for land tax purposes, granting exemption on both. While not determinative, this supports the conclusion that the properties are used as a single residence. | Detailed Reasoning - Consistency with TD 1999/69: 51. The applicant's circumstances align with the factors set out in TD 1999/69, where the Commissioner accepted that physically and functionally integrated adjoining properties could be treated as a single main residence for CGT purposes. | Detailed Reasoning - Conclusion of Facts: Based on the information provided, it is considered that the applicant occupied Property A and Property B as one single dwelling from mid-MM YYYY until present; therefore, the 2 properties are considered the applicant's single main residence. The applicant acquired Property B on DD MM YYYY and immediately rented it out. It was rented out until mid-MM YYYY, as a result, Property B was not the applicant's main residence for that period (late-MM YYYY to mid-MM YYYY). From mid-MM YYYY, the applicant used Property B as an extension of their main residence and integrated it with Property A so that the properties formed one dwelling at AA_BB XYZ Street. The applicant and their x children occupied both properties as one dwelling from mid-MM YYYY until the present time. Both properties are the applicant's single main residence; therefore, the applicant is entitled to a partial main residence exemption, taking into consideration the time that Property B was rented out for rental income purposes. The applicant has not used either Property A or B for any other purpose (eg. rental or business) during the "relevant period", being: • AA XYZ Street (Property A) - since purchase in MM YYYY to current time • BB XYZ Street (Property B) - since mid-MM YYYY (when rental completed) to current time | Detailed Reasoning - CONCLUSION: The applicant may treat their adjoining properties at AA and BB XYZ Street as their single main residence for the purpose of the capital gains tax (CGT) main residence exemption (MRE) under section 118-115 of the ITAA 1997 for the relevant period (since the properties were joined from mid-MM YYYY).