The main residence exemption applies to the dwelling a taxpayer lives in (which may be a home, apartment, strata title unit, unit in a retirement village, caravan, houseboat or mobile home); land adjacent to the dwelling, and other structures associated with the dwelling (such as a separate laundry or garage).

The ATO defines land as adjacent to a dwelling if it is close to, near, adjoining or neighbouring the dwelling. The land a dwelling is actually on is included as part of the dwelling and is not part of adjacent land.

Land adjacent to a dwelling may qualify for the main residence exemption if it and the dwelling are sold together and both of the following apply:

  • During the period the taxpayer owned it, the land was used mainly for private and domestic purposes in association with the dwelling.
  • The total area of the adjacent land and the land the dwelling is on doesn’t exceed 4.94 acres.

If the land adjacent to the dwelling exceeds two hectares the taxpayer can choose which two hectares to exempt. Naturally the most valuable two hectares is normally chosen. The balance of the land will be subject to CGT when sold.

Land sold separately from the dwelling is subject to CGT unless the dwelling has been accidently destroyed and the vacant land sold, or the vacant land adjacent to the dwelling is compulsorily acquired.


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