Edited version of private advice

Authorisation Number: 1051971840951

Date of advice: 13 April 2022

Ruling

Subject: Capital gains tax

Question

Are you entitled to the main residence exemption on adjacent land to your main residence?

Answer

Yes.

Based on the information provided to the Commissioner the adjacent land is exempt from capital gains tax.

Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) outlines the rules that apply to a main residence. Section 118-120 extends the definition of dwelling to adjacent land up to a maximum of 2 hectares.

Taxation Determination TD 92/171 Income tax: capital gains: does the main residence exemption extend to the additional land acquired after the time of acquisition of the residence? provides some relevant guidelines.

As outlined in TD 92/171, an exemption will extend to additional land acquired after the time of acquisition of the main residence if the following requirements of sections 118-120 and 118-165 of the ITAA 1997 are satisfied:

•         the additional land (including the area of land on which the dwelling is built) is adjacent to that on which the dwelling is situated;

•         the total area of land is not greater than 2 hectares;

•         the additional land is used primarily for private or domestic purposes in association with the dwelling; and

•         the CGT event that happens in relation to the additional land also happens in relation to the dwelling (or your ownership interest in it).

The land was used in conjunction with your main residence and was in total less than 2 hectares and it was sold in the one transaction to the same purchaser.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You owned a number of properties.

One property backs on to your home and was used in conjunction to your main residence as the back yard and has a swimming pool on it.

Both properties were purchased by you and your spouse a few decades ago.

You and your spouse separated a number of years later and eventually divorced.

Your former spouse took possession of the properties in the settlement.

A few years later, when your former spouse died, you inherited the properties back from their estate.

Both properties have been your main residence since you inherited them.

The properties have never been used to produce assessable income.

The properties were sold together in the one sale to the one purchaser.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-B