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  • Destruction or compulsory acquisition of your home

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    Destruction of dwelling and sale of land

    If your home is accidentally destroyed and you then dispose of the vacant land on which it was built, you can choose to apply the main residence exemption as if the home had not been destroyed and continued to be your main residence.

    You can get a full exemption for the land if you used it solely for private purposes in association with your home and it does not exceed two hectares. You can't claim the main residence exemption for this period for any other dwelling, except for a limited time if you are changing main residences.

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    Compulsory acquisition of your main residence

    If your home is compulsorily acquired, the main residence rules apply as usual. If you're eligible for the full main residence exemption, you can ignore any capital gain or loss that results from the compulsory acquisition.

    Compulsory acquisition of part of your main residence

    The CGT main residence exemption also covers compulsory acquisition of part of your main residence, such as where land adjacent to your home or a structure associated with your flat or unit is compulsorily acquired without the dwelling itself being acquired.

    You can ignore a capital gain or loss you make from a compulsory acquisition (or similar arrangement) that happens only to land that is adjacent to:

    • a dwelling that is your main residence, or
    • a dwelling that passed to you as a beneficiary or trustee of a deceased estate.

    The main residence exemption will apply to the extent that the land was used primarily for private or domestic purposes in association with the dwelling.

    The maximum area of land covered by the exemption is two hectares including the land underneath the dwelling.

    The exemption applies to CGT events that happen on or after 29 June 2011.

    You can also choose to apply it to CGT events that occurred between 1 July 2004 and 28 June 2011.

    Example

    Debbie and Geoff live in a three bedroom house on a two-hectare rural residential block close to a major city. The Department of Main Roads has begun negotiations with Debbie and Geoff, and several of their neighbours, to end ownership rights over parts of their land.

    The affected area adjacent to Debbie and Geoff's dwelling is 50 square metres along the rear boundary of their block. When their ownership rights end, all affected parties will not be able to conduct any activities on that part of their land.

    Debbie and Geoff satisfy all the requirements for the full main residence exemption. They can disregard any capital gain that results from the compulsory acquisition, which will end their ownership rights for this portion of their property.

    End of example

    If you are a foreign resident when a CGT event happens to your residential property in Australia under a compulsory acquisition arrangement you are no longer entitled to claim the main residence exemption. There is a transitional period. To find out how this affects you see Foreign resident capital gains withholding payments.

    About compulsory acquisition

    All levels of Australian government or entities acting on behalf of Government can compulsorily acquire land and associated structures or an interest in land for a public purpose.

    Compulsory acquisition of part of your main residence, and similar arrangements, include:

    • compulsorily acquiring part of the land adjacent to your residence, or a structure such as a garage or storeroom associated with your flat or home unit
    • compulsorily ending an ownership right over your main residence – for example, removing your ownership right to further develop the main residence by restricting your ability to erect structures above a certain level (such as antennas) or to dig below the soil (inhibiting your ability to undertake any structural development of the property)
    • compulsorily creating a right of access over part of land adjacent to your dwelling
    • compulsorily negotiating a temporary right in relation to your main residence, such as government requiring temporary access through your property to improve property that is used for a public purpose
    • not renewing a right that you hold over the land, such as a Crown lease.

    Determining the extent of your main residence

    The maximum area of land covered by the main residence exemption (including the land on which the dwelling is built) is two hectares. If the land used for private purposes is greater than two hectares, you can choose which two hectares are exempt.

    You'll need to determine how much of the land being compulsorily acquired is associated with your main residence.

    Example

    Robyn’s property is 10.35 hectares. It includes her main residence and associated structures, a dam, landscaped gardens and a 2000 square metre driveway.

    In January 2017, the government advised Robyn that it would acquire 1.4 hectares of her land for the development of a freeway. The area of the acquisition included the dam and part of the landscaped gardens and driveway.

    Robyn chose to apply the capital gains tax main residence exemption to the 1.4 hectares of land being acquired, which she identified as being associated with her main residence.

    End of example

    Maximum exempt area

    The maximum area of land covered by the main residence exemption (including the land on which the dwelling is built) is two hectares.

    If you disregard a capital gain or loss for a compulsory acquisition (or similar arrangement) of part of your main residence, your maximum exempt area must be reduced by that amount.

    Example

    After the compulsory acquisition, Robyn’s property was reduced to 8.95 hectares. Robyn is able to revise which parts of the land and which structures are associated with her main residence, but the maximum area of land that can attract the main residence exemption in the future must be reduced by 1.4 hectares, and must include the land underneath her dwelling.

    Robyn now has 0.6 hectares remaining of her main residence.

    End of example

    Changing the area defined as your main residence

    The parts of your land that you treat as adjacent to your dwelling only become relevant when you are working out if you can apply the main residence exemption to a capital gain or loss. You can redefine the adjacent land when a subsequent CGT event happens to your main residence, but you must always include the land underneath the dwelling. However, you cannot apply the exemption to more than two hectares in total in relation to any one main residence, regardless of how many CGT events happen to the main residence.

    Record keeping requirements

    You need to keep records of any transactions or events that provide evidence of your assessment for how the main residence exemption applies to the part of your main residence that was compulsorily acquired. This includes a record of the calculations of your capital gain or loss, and whether your property is greater than two hectares.

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    Last modified: 29 Jun 2018QC 52193