Edited version of private advice

Authorisation Number: 1051952560805

Date of advice: 4 March 2022

Ruling

Subject: Downsizer contributions eligibility

Question

Will the 10-year ownership condition under subsection 292-102(2) of the Income Tax Assessment Act 1997 (ITAA 1997) be satisfied where the sale of the dwelling was settled 2 days short of the 10-year ownership period, but the owners had an agreement with the seller granting a right to occupy the dwelling prior to the purchase settlement date?

Answer

Yes.

Relevant facts and circumstances

The Owners purchased a residential property (the Unit).

The Unit was purchased off the plan and the settlement of the purchase of the Unit took place in May 20XX.

The Unit was built and sold by the Seller.

The Owners subsequently sold the Unit in May 20XX.

The period between the actual settlement dates is 2 days short of 10 years.

The Owners obtained a letter from the Seller confirming that with the settlement pending the purchase of the Unit, they have granted the Owners with a right to occupy the Unit ten days prior the settlement date of the purchase.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-130

Income Tax Assessment Act 1997 section 292-102

Income Tax Assessment Act 1997 paragraph 292-102(1)(b)

Reasons for Decision

Summary

Based on the information provided by the applicant, an ownership interest in the dwelling was held at all times for the purposes of subparagraph 292-102(2)(a)(ii) of the ITAA 1997 from the date the Owners were granted the right to occupy the Unit until its disposal. As a result, the time in which the right to occupy was granted is able to be considered in assessing the 10-year ownership requirements of the downsizer law. Given that this interest was held at least 10 years prior to the disposal, the 10-year ownership test is satisfied.

Detailed reasoning

'Ownership interest' is a defined term for the purposes of the ITAA 1997. Accordingly, the definition contained with section 118-130 of the ITAA 1997 is of assistance in assessing eligibility to make a downsizer contribution under both subsection 292-102(2) and subparagraph 292-102(1)(b) of the ITAA 1997, as these aspects of the downsizer law refer to the defined term of 'ownership interest'.

Provided that an ownership interest, in accordance with subsection 292-102(2) of the ITAA 1997, was held at all times preceding the disposal of the dwelling, the 10-year ownership test will be met.

Subparagraph 292-102(2)(a) of the ITAA 1997 requires that, in order to make a downsizer contribution, at all times during the 10 years just before disposal:

(i)    The old interest was held by you, your spouse or your former spouse; or

(ii)   An ownership interest in the land on which the dwelling is situated was held by you, your spouse or your former spouse.

The 'old interest' is the ownership interest in the dwelling that is disposed of in accordance with 292-102(1)(b) of the ITAA 1997.

Subsection 118-130(1) of the ITAA 1997 provides that a person has an ownership interest in land or a dwelling if they have a legal or equitable interest in it or a right to occupy it.

We note that subparagraph 292-102(2)(a)(ii) of the ITAA 1997 does not require that the individual (or their spouse) has held an ownership interest of the same nature over the period of the ten years. For example, the relevant interest could be a right to occupy for part of that period, and a different kind of interest for the rest of the period, as long as an ownership interest is held at all times for the ten years preceding the disposal.

Right to occupy:

In accordance with the above provisions relating to ownership interests, a right to occupy the dwelling does convey the required ownership interest to count toward the 10-year ownership requirement. A person with a right to occupy the dwelling for a period will be entitled to take that period into account for the purposes of this requirement.

If an individual's right to occupy is replaced seamlessly with an ownership interest in the dwelling itself, which is capable of being disposed of in accordance with 292-102(1)(b) of the ITAA 1997, they are able to aggregate these periods in respect of satisfying subparagraph 292-102(2) of the ITAA 1997.

For the purposes of assessing the satisfaction of the 10-year ownership test, it is apparent that a right to occupy was granted to the Owners as a result of the agreement with the Seller, ten days prior the settlement date of the purchase.

Accordingly, this applicant is able to consider these combined ownership periods for the purposes of satisfying the 10-year ownership test in 292-102(2) of the ITAA 1997. Based on the facts provided, there is no reason to suggest that there will be a period in which there is no ownership interest held by the Owners as a result of the transition to the holding of the legal interest.

Based on the information provided by the applicant, an ownership interest in the dwelling was held at all times for the purposes of subparagraph 292-102(2)(a)(ii) of the ITAA 1997 from the date the Owners were granted the right to occupy the Unit until its disposal. As a result, the time in which the right to occupy was granted is able to be considered in assessing the 10-year ownership requirements of the downsizer law. Given that this interest was held at least 10 years prior to the disposal, the 10-year ownership test is satisfied.