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Ruling

Subject: CGT - main residence - disposal of adjacent land

Question and answer

Are you entitled to the main residence exemption on a block of land sold separately to your main residence?

No.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You purchased a block of land and built a house on it a number of years ago.

You purchased a second block of land and built a pool and shed on the land.

Each block was on a separate title deed.

Both blocks were transferred to you when your spouse died.

Both blocks were for sale in the one transaction.

Due to difficulties selling both blocks together you decided to sell the block with your house on it.

The block with the pool and shed on it was sold a few years later.

Both blocks were used for private use only.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 102-20.

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Section 118-110.

Income Tax Assessment Act 1997 Section 118-120.

Income Tax Assessment Act 1997 Section 118-150.

Income Tax Assessment Act 1997 Section 118-165.

Reasons for decision

CGT event A1 happens when you dispose of a CGT asset, for example disposal of a dwelling.

Any capital gain or loss you make from a CGT event that happens to your main residence is disregarded if:

· you are an individual

· the dwelling was your main residence throughout your ownership period

· the property was not used to produce assessable income, and

· any land on which the dwelling is situated is not more than two hectares.

In regards to land adjacent to a main residence, Taxation Determination TD 1999/68 states that 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. It does not extend to adjacent land, however, if you dispose of the land separately from the main residence, for example, you dispose of the adjacent land to the same purchaser but at a different time from when you dispose of the main residence, or you dispose of the adjacent land and the main residence to different purchasers even if the disposals happen at the same time.

In your case, you sold the adjacent land in a separate transaction to the sale of your main residence, a number of years later.

Therefore, you did not dispose of the adjacent land to the same person at the same time as you disposed of your main residence.

You are therefore not entitled to disregard the capital gain or loss you made when you sold the adjacent land and must include this gain or loss in your income tax return.