Edited version of private advice

Authorisation Number: 1052017181796

Date of advice: 5 August 2022

Ruling

Subject: CGT - main residence exemption on adjacent land

Question

Are you entitled to the main residence exemption on adjacent land to your main residence at XXX XXXXX Street, XXXXXX, State AA?

Answer

Yes.

Based on the information provided to the Commissioner the adjacent land is exempt from capital gains tax, assuming the land and the dwelling will be sold in the one transaction to the same purchaser.

Subdivision 118-B of the Income Tax Assessment Act 1997(ITAA 1997) outlines the rules that apply to a main residence. Section 118-120 of the ITAA 1997 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 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).

In your circumstances, the land was used in conjunction with your main residence and was in total less than 2 hectares. In addition, it is assumed the land and the dwelling will be sold in the one transaction to the same purchaser. Therefore, based on the information provided, the adjacent land is exempt from capital gains tax

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

3 January 20XX

Relevant facts and circumstances

You acquired the dwelling and the land at Block A.

You acquired the adjoining vacant land at Block B.

You made capital improvements on the adjoining vacant land which you used for your private and domestic purposes.

The land at Block A and Block B has always been used exclusively by you and your family, as your principal place of residence, solely for private and domestic purposes.

Block A and Block B are less than 2 hectares of land in total.

Assumptions

The land and the dwelling will be sold in the one transaction to the same purchaser.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-B