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Authorisation Number: 1011641411306

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Ruling

Subject: Capital Gains Tax - Main Residence

Question 1

Is the gain on the disposal of your main residence exempt from capital gains tax under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answers

Yes

Question 2

Is the gain on the disposal of the land, that you subdivided from the property containing your main residence and disposed of separately, exempt from capital gains tax under section 118-110 of the ITAA 1997?

Advice/Answers

No

Scheme

You purchased a house after 20 September 1985 and lived in the house as your residence until it was sold, and you had no other residence during this period.

You planned to sell the house including land. However due to difficulty selling, you subdivided the land into two separate parcels and sold individually.

The land containing your residence was not on an area of greater than 2 hectares.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-120

Reasons for decision

Question 1

Summary

As the dwelling was your main residence for your entire ownership period, and the requirements of section 118-110 of the ITAA 1997 have been met, the gain on the disposal will be exempt from capital gains tax.

Detailed reasoning

Discussion of the law

Section 118-110 of the ITAA 1997 states:

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.

Application to your circumstances

You purchased a property after 20 September 1985 which included a dwelling in which you have lived as your residence until you sold the property. You had no other residence during this period.

Conclusion

As the dwelling was your main residence for your entire ownership period you can disregard any capital gain or capital loss you have made upon its disposal.

Question 2

Summary

As you disposed of the subdivided block of land separately from your dwelling, the main residence exemption under section 118-110 of the ITAA 1997 will not be available, and therefore capital gains tax will apply.

Detailed reasoning

Discussion of the law

The exemption for a main residence is extended by section 118-120 of the ITAA 1997 to include land that is adjacent to a dwelling (if the same CGT event happens to the land or your ownership interest in it) to the extent that you use the land primarily for private or domestic purposes in association with the dwelling as if it were a dwelling.

Therefore, if you dispose of the land adjacent to your dwelling separately from the dwelling, the land is not exempt. The land is only exempt when it is disposed with the dwelling.

Application to your circumstances

Due to difficulty selling your property, containing your main residence, you subdivided the land into two separate parcels and sold each individually.

Conclusion

As you disposed of the adjacent block of land separately from your dwelling the main residence exemption will not apply.

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