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Reproduced with permission.
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 two hectares.
To be considered adjacent, the land need not be connected, but has to be close or near. Both the dwelling and adjacent land must be owned by the same party for this exemption to apply.
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.
Note if the land is used 50% for income producing and 50% for private and domestic purposes then the main residence exemption can only be applied to 50% of the capital gain or loss.
If the land exceeds two hectares, the taxpayer may select which two 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 two hectares cannot be separately valued, the proportion entitled to a main residence exemption will be calculated on an area basis.
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 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.
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