Edited version of private advice

Authorisation Number: 1052117249122

Date of advice: 10 May 2023

Ruling

Subject: Capital gains tax

Question

Are you required to pay Capital gains Tax on the parcel of land you sold?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased land a number of years ago and constructed a house on it.

You moved into this house and lived in it as your main residence.

In recent years you sold a portion of the land.

You kept a smaller portion of the land with your main residence on it.

You remain living in the house as your main residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-120

Income Tax Assessment Act 1997 section 118-190

Reasons for decision

Section 102-20 of the ITAA 1997 Income Tax Assessment Act 1997 (ITAA) provides that you make a capital gain or loss as a result of a CGT event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else (section 104-10 of the ITAA 1997).

You will make a capital gain if the capital proceeds from the disposal of a CGT asset are more than the cost base.

A capital gain or loss you make is disregarded if you acquired the asset before 20 September 1985.

Also, you can generally disregard a capital gain or loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence.

To get the full exemption from CGT, the dwelling must be your home for the whole period that you owned it (subsection 118-110(1)(b) of the ITAA 1997) and you must not have used the dwelling to produce assessable income (subsection 118-190 of the ITAA 1997). The main residence exemption also includes up to a maximum of 2 hectares of land used primarily for private and domestic purposes in association with the dwelling (section 118-120 of the ITAA 1997).

You sold a portion of the land a number of years ago.

You kept the remaining land with your main residence on it and remain living in the house as your main residence.

As you did not sell the house along with the land, you are subject to capital gains tax on the sale of the land.

The land is not exempt from CGT under the main residence exemption as your main residence was not sold with the land.

You are therefore required to declare the capital gain in your tax return.