ATO Interpretative Decision

ATO ID 2003/467 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. Guidance on the basis of the decision in this ATO ID can be found in the Guide to capital gains tax (NAT 4151).
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are individuals who own a dwelling in their capacity as trustees of a family trust, and who use the dwelling as their main residence, entitled to the main residence exemption under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the dwelling?

Decision

No. As the individuals acquired the dwelling in their capacity as trustees, the condition in paragraph 118-110(1)(a) of the ITAA 1997 cannot be satisfied. Accordingly, the main residence exemption is not available.

Facts

Two individuals in their capacity as trustees of a family trust purchased a dwelling in the 2000-01 income year. The individuals and their family used the dwelling as their main residence.

Approximately two years later, the ownership of the dwelling was transferred from the two individuals in their trustee capacity to one of them in their personal capacity.

Reasons for Decision

Subsection 118-110(1) of the ITAA 1997 provides that a capital gain or capital loss made by an individual from a CGT event that happens in relation to a dwelling is disregarded if the dwelling was their main residence throughout their ownership period.

The requirement that the taxpayer be an individual is specified in paragraph 118-110(1)(a) of the ITAA 1997. Subsection 995-1(1) of the ITAA 1997 defines an individual to mean a natural person.

The ITAA 1997 recognises that a legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity (subsection 960-100(3) of the ITAA 1997). The trustee of a trust is taken to be an entity consisting of the person who is the trustee at any given time (subsection 960-100(2) of the ITAA 1997).

However, if a provision of the ITAA 1997 refers to an entity of a particular kind, it refers to the entity in its capacity as that kind of entity, not to that entity in any other capacity (subsection 960-100(4) of the ITAA 1997). Therefore, the reference in paragraph 118-110(1)(a) of the ITAA 1997 to an individual is a reference to an individual acting in their personal capacity only. It does not include an individual in the capacity of a trustee.

Because the dwelling in this case was acquired by the two individuals in their capacity as trustees, the condition in paragraph 118-110(1)(a) of the ITAA 1997 cannot be satisfied. Therefore, the main residence exemption does not apply. Accordingly, any capital gain or capital loss made from the disposal of the dwelling by the individuals in their trustee capacity will not be disregarded.

The result is the same under the equivalent provision of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 160ZZQ(12) of the ITAA 1936 provides an exemption where a dwelling owned by a taxpayer, being a natural person other than a person in the capacity of a trustee, is disposed of and the dwelling was the taxpayer's main residence throughout the relevant period.

The main residence exemption provision in the ITAA 1936 specifically excludes individuals in a trustee capacity, whereas the equivalent provision in the ITAA 1997 relies upon the definition of 'entity' in subsection 995-1(1) to achieve the same result. It is considered that the relevant provisions in the ITAA 1936 and ITAA 1997 express the same ideas, although different forms of words are used. Section 1-3 of the ITAA 1997 provides that if the ITAA 1936 expressed an idea in a particular form of words and the ITAA 1997 appears to have expressed the same idea in a different form of words in order to use a clearer or simpler style, the ideas are not taken to be different just because different forms of words are used.

Accordingly, the main residence exemption is not available as the individuals acquired the dwelling in their capacity as trustees, the condition in paragraph 118-110(1)(a) of the ITAA 1997 cannot be satisfied.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   subsection 160ZZQ(12)

Keywords
Capital gains
Capital gains tax
Capital losses
CGT capital proceeds
CGT main residence exemption

Business Line:  Small Business/Individual Taxpayers

Date of publication:  20 June 2003

ISSN: 1445-2782