Capital gains tax (CGT) law now extends the main residence exemption to the compulsory acquisition of part of your main residence without the actual dwelling being acquired.
These changes became law on the 29 June 2011. You can also choose to apply the new rules to sales that happened at any time from 1 July 2004.
Prior to the change, if part of your main residence – but not your dwelling – was compulsory acquired, you may have been liable to pay tax on the whole or part of the capital gain and the loss would have been available to offset against other capital gains.
The changes extend the main residence exemption to compulsory requisitions or similar arrangements which are associated with your main residence but not your dwelling. For example, if a local government authority requires some of your property for a public purpose.
This may allow you to disregard all or part of the capital gain or loss where part of your main residence is compulsory required by or on behalf of a government authority. To be eligible, you need to meet criteria similar to the main residency exemption.
You will be entitled to the same full or partial exemption for your compulsory requisition of a part of your main residence that you would have been entitled to if you had disposed of your dwelling.
If you wish to discuss the changes to the CGT law and how they apply to your situation, please contact Ellingsen Partners.