Edited version of private advice

Authorisation Number: 1051994316472

Date of advice: 16 June 2022

Ruling

Subject: Capital gains tax

Question

Are you entitled to an exemption from Capital gains tax for the land because it was used as part of your main residence?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You purchased land a couple of decades ago.

The land is adjacent to your main residence.

The land was less than 2 hectares.

There was a garage erected on the vacant land and was used by you for private purposes in garaging your own personal property and was always considered part of the main residence.

You planted fruit trees and a small vegetable garden for personal consumption on the land.

A chicken coup was also erected to house chickens to produce eggs, also for your own use.

You were initially going to sell both parcels of land in the one sale and a sale fell through due to the prospective buyer not being able to get the finance for both properties.

The properties were then sold in two separate transactions to different purchasers.

The land where your main residence was sold in the middle of the year.

The other land sold a few months later.

Settlement for both properties was near the end of the year on the same date.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 118-120

Reasons for decision

Section 102-20 of the Income Tax Assessment Act (ITAA) 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:

•         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.

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 adjacent land in a separate transaction to your main residence to a different person at a different time. Therefore, you are not entitled to disregard any capital gain or loss made on the sale of the adjacent land.