1 Are you eligible to claim the main residence exemption for the dwelling and adjacent land up to two hectares located at the property?
Yes. Question 2 Are you eligible to apply the CGT discount on the remaining hectares of the property, after applying the main residence exemption on up to two hectares? Answer Yes. This ruling applies for the following period : Year ended 30 June 20XX The scheme commenced on: 1 July 20XX
On DDMM20YY, you purchased the Property. The land is greater than 2 hectares in size and includes a residential dwelling. It was your primary place of residence from the date of acquisition until the sale on DDMM20YY. The property has never been used to produce assessable income, nor has it been used in the carrying on of a business. You provided a valuation report from Company A, which stated that the property had an estimated value of $XX. It sold for $XX. This report also estimated that the land with the dwelling on it was XX metres squared. You have stated that the land is covered by various environmental protections, including: • Koala habitat restrictions, prohibiting development or subdivision, • a sloping terrain subject to landslide hazards, • identified bushfire risk areas, • restrictions on removal of habitat trees, • an easement affecting part of the site. You wanted to have an extension to the existing house, e.g. a Granny flat, but then discovered the easement that was in place (attachment provided from Company B dated DDMM20YY with data from the council). It was a rural zone. This image also showed the various constraints that were on the land as listed above.
You have not received any compensation for the easement. You provided attachments of the following: • A site report prepared by Company B identifying the physical and legal constraints of the land. • A valuation report from Company C, supporting that the market value is primarily attributable to the house and immediate surrounding land. • A report of recent property sales in the area on similarly sized blocks, based on data from realestate.com.au. You have stated that the land is covered by various environmental protections.
Income Tax Assessment Act 1997 Section 118-110 Income Tax Assessment Act 1997 Section 118-120 Income Tax Assessment Act 1997 Division 115
Question 1 Are you eligible to claim the main residence exemption for the dwelling and adjacent land up to two hectares located at the property? Answer Yes. Summary You are eligible to claim the main residence exemption for the dwelling and adjacent land up to two hectares located at the property, as you meet the requirements of section 118-110 and 118-120 of the Income Tax Assessment Act 1997 (ITAA 1997). Question 2 Are you eligible to apply the CGT discount on the remaining hectares of the property, after applying the main residence exemption on up to two hectares? Answer Yes. Summary You are eligible to apply the CGT discount on the remaining hectares of the property, after applying the main residence exemption on up to two hectares, as you meet the requirements set out in Division 115 of the ITAA 1997. Detailed reasoning Main residence exemption A CGT exemption is available for capital gains and losses from CGT events affecting a dwelling or an ownership interest in it if the dwelling was the main residence of the taxpayer during the taxpayer's ownership period under section 118-110 of the ITAA 1997.
The main residence exemption may be extended to adjacent land, a garage, storeroom, or other structure associated to a dwelling if the following conditions contained in section 118-120 of the ITAA 1997 are met: • the same CGT event happens to the land (or the taxpayer's ownership interest in it) as happens in relation to the dwelling (or the taxpayer's ownership interest in it) under subsection 118-120(1) of the ITAA 1997 • land adjacent to a dwelling is its adjacent land to the extent that the adjacent land was used by the taxpayer primarily for private or domestic purposes in association with the dwelling under subsection 118-120(2) of the ITAA 1997; and • the maximum area of adjacent land covered by the exemption for the CGT event is two hectares, less the area of the land immediately under the dwelling under subsection 118-120(3) of the ITAA 1997. If a taxpayer's land (including land on which a dwelling is situated) exceeds two hectares, the taxpayer can select which two hectares the main residence exemption applies to (as long as that selected 2 hectares includes the portion of land that includes the dwelling) as outlined in Taxation Determination TD 1999/67.
Application to your situation The Property has a land area of 4.7 hectares including the land immediately under the dwelling. CGT discount Under Division 115 of the ITAA 1997 for a capital gain to be a discount capital gain the following requirements must be satisfied: • it is made by an individual, a trust, or a complying superannuation entity • a CGT event happens to an asset the entity owns • the CGT event happened after 11.45am (by legal time in the ACT) on 21 September 1999 • the asset was acquired at least 12 months before the CGT event, and • the indexation method was not used to calculate the cost base. If these conditions are met, any capital gain made on the disposal of the remaining 2.7 hectares can be reduced by applying the 50% CGT discount (as for an individual the capital gain is reduced by the discount percentage of 50%). The CGT discount in Division 115 of the ITAA 1997 does not require a choice to be made for its application but applies automatically if its conditions are satisfied. Application to your circumstances
As you purchased the property more than 12 months ago, and the other conditions are satisfied for a discount capital gain, you can reduce any capital gain on the remaining 2.7 hectares of land on the property by 50% on the sale of the property.