Issue
Whether the taxpayer can select up to 2 hectares of adjacent post-CGT land as exempt under the main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997), if the land under the dwelling is pre-CGT land.
Decision
Yes, the taxpayer may choose to apply the main residence exemption to 2 hectares of adjacent post-CGT land. The pre-CGT land under the dwelling is not taken into account in determining the 2 hectare area.
Facts
Prior to 20 September 1985 the taxpayer purchased a block of land containing approximately 3 hectares and a dwelling was constructed on this property.
After 19 September 1985, the taxpayer acquired an adjoining block of land containing approximately 3 hectares. This block was purchased specifically to increase the land area surrounding the taxpayer's main residence, and to improve the privacy of the taxpayer's dwelling.
The taxpayer uses both of the properties only for private and domestic purposes during the period of ownership.
Reasons for Decision
Section 118-120 of the ITAA 1997 provides that the main residence exemption can include land adjacent to the dwelling to the extent that it is used primarily for private or domestic purposes in association with the dwelling. Sub-section 118-120(3) of the ITAA 1997 specifies the maximum area of land that is covered by the main residence exemption (including the area under the dwelling) must not exceed 2 hectares.
As the land on which the taxpayer's dwelling is built is pre-CGT land, any capital gain on disposal is disregarded under sub-section 104-10(5) of the ITAA 1997. Consequently, in this case, the land under the dwelling is not taken into account in determining the area of adjacent land that qualifies for the main residence exemption. Therefore, the taxpayer may choose to apply the main residence exemption to the adjacent post-CGT land, up to a maximum of 2 hectares.
Note: Taxation Determination TD 1999/67 states that where your land (including the land on which your dwelling is situated) exceeds 2 hectares, you can apply the main residence exemption in Subdivision 118-B of the ITAA 1997 to whichever area of land you choose in addition to the land on which your dwelling is situated.
Amendment History
Date of amendment Part Comment 22 November 2013 Reason for Decision Updated legislative reference. Legislative References Updated legislative reference. Related Public Rulings (including Determinations) Additional related ATO Taxation Determination added.
Date of amendment | Part | Comment
22 November 2013 | Reason for Decision | Updated legislative reference.
Legislative References | Updated legislative reference.
Related Public Rulings (including Determinations) | Additional related ATO Taxation Determination added.