Edited version of private advice

Authorisation Number: 1052099124737

Date of advice: 21 March 2023

Ruling

Subject: CGT - disposal of adjacent land

Question 1

Will the neighbouring properties be considered to be adjacent land and treated as if it was a part of the dwelling for the purposes of the main residence exemption?

Answer

Yes. 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. In your case, the neighbouring properties are considered to be adjacent to the dwelling for the purposes of the main residence exemption.

Question 2

Are you eligible to claim the main residence exemption for the three properties?

Answer

Yes. The deceased held two separate ownership interests for capital gains tax purposes in each of the properties when she passed away, being their original ownership interest in each property, and the ownership interest in each property they inherited. The deceased had resided at the properties since they were acquired until they passed away.

The properties had a combined area of less than two hectares, were sold in a single sale transaction, and settlement occurred within two years of the deceased's passing.

Therefore, in accordance with the application of section 118-195 of the ITAA 1997, you can disregard any capital gain or loss made on the sale of the properties.

Question 3

Did all three properties need to be sold in the one transaction for the main residence exemption to apply to each of the properties?

Answer

Yes. 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'.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Three properties were purchased pre-CGT.

One property was purchased as a main residence and was used as such for the entirety of the ownership period.

The remaining two properties were purchased for additional backyard for the sole use and enjoyment of the owners.

Both of the owners are now deceased.

The combined area of the three lots is less than 2 hectares.

The properties were never used for income producing purposes.

The properties have now been sold and were sold together as one lot in one transaction to the same buyer.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-120

Income Tax Assessment Act 1997 section 118-165

Income Tax Assessment Act 1997 section 118-195