Edited version of private advice

Authorisation number: 1052497423580

Date of advice: 29 January 2026

Ruling

Subject: Main residence exemption - adjacent land

Question

Are you able to treat the vacant land next to your main residence as adjacent land, to obtain the main residence exemption on your share of the vacant land?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

01 July 20XX

Relevant facts and circumstances

You and your relative purchased the original property a few years ago.

The land was later subdivided which included a vacant residential block.

You and your relative owned a share in each of the blocks up until the disposal date.

Construction of a house on one of the blocks commenced in the same year as the land was purchased and was completed in a later financial year.

During the build, one of the blocks was used as a practical area for the builder.

You moved into the finished house as soon as it was ready and was your main residence.

A number of months ago, you transferred your share of each block to your relative in a single transaction for family reasons.

You continued living in the house after the property was transferred.

The vacant block was a separate titled lot.

You have advised that you used the vacant block daily as part of your normal living routine after moving in.

Your actual backyard is very small.

You have advised that you used the block every day for things like:

•                     walking laps for exercise - rucking

•                     getting fresh air

•                     listening to podcasts or music

•                     general stress relief

•                     maintaining it (especially mowing due to heavy winter growth)

You have advised that this was a consistent routine, not just occasional use.

You have advised that although you used the block as part of your home life, physically joining the lots wasn't practical:

•                     If you fenced the block off from the street, people could dump rubbish over the fence.

•                     If you removed part of your internal fence to join the block to your backyard, it created a real security risk. Someone could get onto the vacant block unseen and then straight into your backyard area.

•                     You didn't want to make permanent changes (like landscaping or structures) because your relative intends to build a home on that block so your family can live next to each other.

The vacant block was never rented out, never used for business, and was never held for resale. The intention from the start was family use, with your relative planning to eventually build on the vacant land.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-120

Reasons for decision

A capital gain or capital loss may arise if a capital gains tax event (CGT event) happens to a capital gains tax asset (CGT asset). The most common CGT event is CGT event A1, and this occurs when an entity disposes of the ownership interest in an asset. The sale of vacant land would be a CGT event A1.

Under certain circumstances, you may be able to disregard a capital gain or capital loss that is made on the sale of an asset. For example, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence. The exemption is also extended to include up to 2 hectares of land that is adjacent to the dwelling.

In your case CGT event A1 occurred on the vacant block of land when you transferred your share of the vacant land to your relative.

It was always your intention and your relative's intention for your relative to build a home on the vacant block of land.

Although you say you used the vacant land to walk around, stress relief, get fresh air and listen to pod casts, the Commissioner does not consider the vacant land was used in conjunction with your main residence.

The Commissioner is not satisfied that the vacant block of land was used "primarily for private or domestic purposes" in association with the dwelling.

The activities you say you used the vacant land for could have been done anywhere and you did not construct anything on the land as your relative wanted to use the land for their own home.

Therefore, CGT event A1 occurred when you transferred your share of the vacant land to your relative.

You must include any capital gain made on your share of the transfer of the vacant land in your income tax return.