When selling your home, you can generally claim the main residence exemption for the dwelling you live in.
If you have purchased the adjoining block of land some time later after the time of acquisition of the residence to build a swimming pool or create a beautiful garden it may retain the CGT main residence exemption.
Land adjacent to a dwelling qualifies for the main residence exemption if it and the dwelling are sold together and both of the following apply:
- during the period you owned it, you used the land mainly for private and domestic purposes in association with the dwelling, and
- the total area of the adjacent land and the land on which the dwelling stands is not more than two hectares (4.94 acres).
If the adjacent land is used for private purposes and is greater than two hectares, you can choose which two hectares are exempt. The remainder is subject to CGT.
If any part of the land around a dwelling is used to produce income, it is not exempt, even if the total land area is less than two hectares.
Tom and Mary purchase a home in 1987 and occupy it as their main residence. The home has never been used for income producing purposes. In 1989, they purchase the vacant block of land that adjoins the land on which their dwelling is situated and construct a private swimming pool. The total of the area of adjacent land and the area of the land on which the home is situated is less than 2 hectares. In 2001, they enter into a contract to sell the home with the adjoining block. A full main residence exemption is available.
Land you sell separately from the dwelling is subject to CGT unless:
- the dwelling has been destroyed accidentally and you sell the vacant land, or
- the vacant land adjacent to your dwelling is compulsorily acquired.
If the dwelling is not sold with the land – for example, because the dwelling is a caravan and has been removed or sold separately – the sale of the land is subject to CGT.
If you would like any further information on the above, please contact one of our tax accountants at The Quinn Group on (02) 9223 9166 or submit an online enquiry.