A question that surfaces now and then in regard to capital gains is whether the main residence exemption extends to additional land acquired after the time of acquisition of the residence.

The short answer is yes — provided that certain requirements are met. It should also be noted that where the exemption applies upon satisfaction of the following requirements, it applies to both pre- and post-CGT dwellings (before and after 20 September 1985).

The requirements are:
1. the additional land (including the area of land on which the dwelling is built) is adjacent to that on which the dwelling is situated;
2. the total area of land is not greater than two hectares;
3. the additional land is used primarily for private or domestic purposes in association with the dwelling; and
4. the CGT event that happens in relation to the additional land also happens in relation to the dwelling (that is, your ownership interest in it).