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Edited version of private advice
Authorisation Number: 1012650125085
Ruling
Subject: Capital Gains Tax - main residence
Questions and answers
1. Are you eligible to the full main residence exemption from capital gains tax on the sale of your property?
No.
2. Are you entitled to a partial main residence exemption from capital gains tax on the sale of your properties?
Yes.
This ruling applies for the following periods
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
The scheme has commenced
Relevant facts and circumstances
You purchased the block adjoining your main residence.
At the time you bought it there were tenants living in the dwellings on the block.
One set of tenants left upon purchase of the property.
The other tenant left some months after you purchased the property.
You are taking steps to consolidate both blocks as your main residence.
You have taken down the first building, and are currently in the process of having the second building removed as well.
The total land area is less than two hectares.
If you sell the property it will be to the same purchaser.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section102-20
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 104-20.
Income Tax Assessment Act 1997 Section 108-110
Income Tax Assessment Act 1997 Section 118-120
Income Tax Assessment Act 1997 Section 118-165
Reasons for decision
You make a capital gain or a capital loss as result of a CGT event happening to a CGT asset in which you have an ownership interest (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).
Buildings and land are specifically defined as CGT assets (section 108-5 of the ITAA 1997) and the disposal of a CGT asset constitutes a CGT event A1 (section 104-10 of the ITAA 1997).
As a general rule, you can disregard any capital gain or capital loss realised on the disposal of a dwelling if:
1. you are an individual;
2. the dwelling was your home for the whole period you owned it; and
3. the dwelling was not used to produce assessable income (118-110 of the ITAA 1997).
The exemption extends to land provided the following requirements of section 118-120 of the ITAA 1997 are satisfied:
1. the land is adjacent to the land on which the dwelling is situated (Land does not have to be contiguous to (that is, touching or in contact with) the land on which a dwelling is situated to be 'adjacent' to the dwelling);
2. the total area of land is not greater than 2 hectares;
3. the land is used primarily for private or domestic purposes in association with the dwelling; and
4. the land is not sold separately from the dwelling.
The merging of two blocks of land is not a CGT event that gives rise to an assessable capital gain. (section 112-25 ITAA 1997)
The main residence exemption does not apply to a CGT event that happens in relation to adjacent land if the event does not happen in relation to the dwelling or your ownership interest in it (section 118-165 of the ITAA 1997). If you dispose of adjacent land to the same person and at the same time as you dispose of your main residence, the exemption extends to the adjacent land.
The total land area of the two blocks is less than two hectares.
You purchased an adjoining block of land that had two buildings on it. The first building has been demolished (which is a CGT event C1) and has been used for private or domestic purposes in association with your main residence throughout your ownership period. You intend to dispose of the now vacant land at the same time and to the same purchaser as your original main residence. Therefore, you are entitled to the full main residence exemption for this block.
The property also has a dwelling on it that was originally rented for a period of time. You ceased renting the dwelling and have since used the block for private or domestic purposes in association with your main residence. You are in the process of demolishing the dwelling and using the property as part of your main residence. It is your intention to dispose of the property at the same time as your main residence and to the same purchaser. As this land has not been used primarily for private or domestic purposes in association with your main residence for your entire ownership period you are not entitled to the full main residence exemption for this block. You are not entitled to the main residence exemption for the period the dwelling was used to produce rental income.
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