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Edited version of your written advice
Authorisation Number: 1051503152259
Date of advice: 5 April 2019
Ruling
Subject: Capital gains tax - main residence exemption - adjacent land
Question
Are you entitled to claim the main residence exemption on the sale of an adjacent block of land which was sold in separate transaction, to a different purchaser, to the main residence?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You inherited two blocks of land whose boundaries adjoined: one title had the dwelling and the other had a shed and garden furniture.
You always lived on the property in the dwelling, and you considered it your main residence.
The total area of the properties is less than two hectares.
You did not use the land around the dwelling to produce assessable income.
You sold the two blocks separately to different people.
You sold the block of land that had the shed and garden furniture approximately one month before you sold the property with the dwelling.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Subdivision 118-B
Income Tax Assessment Act 1997 Subsection 118-100
Income Tax Assessment Act 1997 Subsection 118-120(1)
Income Tax Assessment Act 1997 Subsection 118-120(2)
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 states that a capital gain or capital loss is made when a capital gains tax (CGT) event happens to a CGT asset you own.
A capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence is disregarded if:
Section 118-120 of the ITAA 1997 allows an exemption to include land which is adjacent to a dwelling as part of your main residence provided it is used primarily for private or domestic purposes and the same CGT event happens to the land. Land is adjacent to your dwelling if it is close to, near, adjoining or neighbouring the dwelling (Mayor of Wellington v. Mayor of Lower Hutt AC 773 at 775-776).
The application of the extension to adjacent land is determined at the time of CGT event which happens to the dwelling.
Taxation Determination TD 1999/68 discusses what is ‘adjacent’ land for the purposes of the main residence exemption and states, at paragraph 7:
‘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: see section 118-165. 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, e.g., 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 two blocks of land in separate transactions, to different people, at different times. Therefore, you are not entitled to disregard any capital gain or loss made on the sale.