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Edited version of private advice
Authorisation Number: 1051632664626
Date of advice: 21 February 2020
Ruling
Subject: Main Residence Exemption - Compulsory acquisition
Question 1
Is Property B considered to be your main residence for the period between xx/xx/xxxx to xx/xx/xxxx under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. Having considered your circumstances, the property can be treated as your main residence for the period from xx/xx/xxxx to xx/xx/xxxx due to the operation of section 118-140 of the ITAA 1997 (to do with changing main residences) and section 118-150 of the ITAA 1997 (to do with building a dwelling).
As you sold and settled your previous main residence (Property A) on xx/xx/xxxx, and utilising the 'six month rule' in section 118-140 of the ITAA 1997 to exempt Property A from any CGT liability, the new property, that is, Property B, will not be exempt from CGT for the period yy/yy/yyyy to yy/yy/yyyy. Further information about the main residence exemption can be found by searching 'QC 22168' on ato.gov.au
Question 2
Will you be able to partially disregard any capital gain made on the disposal of part of Property B under sections 118-245 to 118-260 of the ITAA 1997?
Answer
Yes. In this case, you meet all the criteria to be entitled to an exemption in relation to the compulsory acquisition of adjacent land as per sections 118-245 and 118-250 of the ITAA 1997. The compulsorily acquisition of part of your main residence includes compulsorily acquiring part of the land adjacent to your residence. However, you are only entitled to a partial exemption as per section 118-260 of the ITAA 1997 as the property was not your main residence for your entire period of ownership. Further information about this exemption can be found by searching 'QC 52193' on ato.gov.au
Further information
The main residence exemption is available in respect of any adjacent land up to a maximum land area of two hectares including the area of land on which the dwelling is situated (subsection 118-120(3) of the ITAA 1997). A choice is available with respect to when the area of land in excess of two hectares is taken into account for capital gains tax purposes, that is, you can choose to defer the impact of the excess area until you dispose of the remaining part of the property that was not compulsorily acquired (subsection 118-245(2) of the ITAA 1997).
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and your spouse purchased Property B being vacant land.
The property was greater than 2 hectares. The primary purpose for purchasing the land was to eventually build a dwelling for residential purposes only.
At the time of entering the contract for the vacant land, you and your spouse had a main residence being Property A.
The main residence was sold.
During the relevant year, construction for a house and garage commenced at Property B. When this was completed you moved in and resided in the property immediately. This has been your principal place of residence since.
During the time of the purchase of Property B to the current date, you have never rented, leased, or used the property for income producing purposes.
You received a letter from the relevant Australian government agency in relation to a proposed land acquisition of part of Property B.
The relevant Australian government agency required a section of land for the realignment and upgrade of an adjacent road. As part of the relevant Australian government agency's plan, this was a compulsory acquisition through negotiations and not an agreement between you and the public authority.
You engaged lawyers and land valuers to assist with the negotiations.
The relevant Australian government agency sent a letter to you stating the Plan of Acquisition had been completed with their necessary size of land required and an offer was made.
You agreed to the amount of compensation offered by the relevant Australian government agency for the compulsory acquisition of the section of Property B.
The compensation amount was paid and the acquisition was gazetted.
Relevant legislative provisions
Section 118-110of the Income Tax Assessment Act 1997
Section 118-120of the Income Tax Assessment Act 1997
Section 118-140of the Income Tax Assessment Act 1997
Section 118-150of the Income Tax Assessment Act 1997
Section 118-245 of the Income Tax Assessment Act 1997
Section 118-250of the Income Tax Assessment Act 1997
Section 118-255of the Income Tax Assessment Act 1997
Section 118-260of the Income Tax Assessment Act 1997