CGT Main Residence Exemption

Any capital gain or loss made on the disposal of a taxpayer's main residence is exempt from capital gains. To qualify, a person must own or acquire a "dwelling" which is defined to include a unit of accommodation constituted or contained within a building. the unit of accommodation must substantially be residential accommodation. The dwelling itself can be a caravan, houseboat or mobile home as well as the land below the dwelling.

Multiple Dwellings on the One Property
As a general rule, the main residence exemption only applies to one unit of accommodation that is used as a person's main residence. However, in circumstances where there are multiple units of accommodation, they may in qualify as part of the main residence. This is generally when the two units of accommodation are so integrated, that they are not considered to be separate from the main residence.

For example, if you have a caravan parked behind your farmhouse, and a family member lives in there, but regularly uses the facilities in the farmhouse, it might be considered part of the main residence. But if two dwellings are independent of each other, but affixed to the owners land, then that would generally constitute a separate dwelling.

In all, the question of whether or not multiple units of accommodation constitute the same dwelling is a matter to be determined on individual circumstances. The courts have taken the view that the facts considered in deciding whether multiple units can constitute the same dwelling are:

(a) whether the occupants sleep, eat and live in them;
(b) the distance between and the proximity of the units of accommodation;
(c) whether the units are connected;
(d) whether the units are capable of being sold separately;
(e) the extent to which the daily activities of the occupants in the units are integrated;
(f) how the units are shared by the occupants; and
(g) how costs of the units are shared by the occupants.

For a detailed explanation, and some examples, view the Australian Tax Office ruling on the matter, TD 1999/69.

Ownership
A person is considered to own or have acquired the dwelling if they have a legal or equitable estate or interest in the land on which the dwelling resides, or a license to occupy the dwelling.

Where ownership is shared, the main residence exemption will apply separately to each owner, if they are both using the dwelling as their main residence.
The main residence exemption will not be available when the property is held by an individual trustee of a trust (ID 2003/467), nor will it be available when held by a company, or corporate trustee (ID 2003/163).

Adjacent Land & Subdivided Land
The main residence exemption includes land that is adjacent to the dwelling, if it is used for private or domestic purposes and the dwelling and surrounding land does not exceed 2 hectares. To be considered adjacent, the land need not be connected, but has to be close or near (TD 1999/68). If part of the land is used for income producing purposes, then the main residence exemption is denied for whatever portion of the land was not used for private or domestic purposes (TD 2000/15).

If the land exceeds 2 hectares, the taxpayer may select which 2 hectares will qualify for the main residence exemption. If those two hectares can be separately valued, then the proportion of capital gain they generate when disposed of will be disregarded. If the 2 hectares cannot be separately valued, the proportion entitled to a main residence exemption will be calculated on an area basis (TD 1999/67).

A Separate garage or store room is also considered part of the main residence exemption, provided that it is attached to the building or is part of the building in which the unit of accommodation is contained, and it is used for private or or domestic purposes.
If adjacent land is disposed of separately from the rest of the dwelling; or the garage, storeroom or other structure forming part of the dwelling is disposed of separately, the main residence exemption will not apply to that disposal.

See also, Main Residence Exemption Timing Issues and Main Residence Usage.