ATO Interpretative Decision

ATO ID 2002/1039

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Can an individual disregard, under the main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain from a dwelling that they did not reside in, but which was occupied as the main residence of their dependent children who were under 18?

Decision

Yes. If the individual chooses, under section 118-175 of the ITAA 1997, to treat the dependent children's dwelling as the individual's main residence, any capital gain made on the disposal of that dwelling will be disregarded under section 118-110 of the ITAA 1997.

Facts

An individual purchased a dwelling that was occupied as the main residence of the individual's dependent children, who were under 18, throughout the time that it was owned.

The individual did not live in the dwelling at any time but resided at accommodation provided by their employer.

The individual did not own any other dwelling. The dwelling was not used to produce assessable income. The land adjacent to the dwelling did not exceed 2 hectares.

The individual subsequently sold the dwelling and made a capital gain.

Reasons for Decision

Subdivision 118-B of the ITAA 1997 provides an exemption for a capital gain or capital loss from certain CGT events that happen in relation to a taxpayer's main residence. The general rule is contained in section 118-110 of the ITAA 1997 which provides that a capital gain or loss that an individual makes from the disposal of a dwelling is disregarded if the dwelling was the individual's main residence throughout the period it was owned. This rule may be extended or limited by other provisions in Subdivision 118-B of the ITAA 1997.

Whether a dwelling is an individual's main residence depends on the facts of each case. The factors to be taken into account include the length of time the individual lives in the dwelling, the place of residence of the individual's family and whether the individual has moved his personal belongings into the dwelling (see Taxation Determination TD 51).

In this situation, the individual's main residence was the accommodation provided by their employer. The dwelling owned by the individual was the main residence of the individual's dependent children.

In certain cases, a dwelling may be treated as an individual's main residence. For example, section 118-175 of the ITAA 1997 provides that if a dwelling is your main residence and another dwelling is the main residence of a child of yours who is under 18 and is dependent on you for economic support, you must choose one of them as the main residence of both of you.

In accordance, with section 118-175 of the ITAA 1997, the individual may choose their dependent children's residence as their main residence. If this choice is made, any capital gain or capital loss the individual makes on the disposal of the dwelling will be disregarded as they satisfy all of the conditions in section 118-110 of the ITAA 1997 and none of the rules that limit the exemption apply.

If the individual does not choose the dependent children's residence as their main residence no exemption will be available.

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Subdivision 118-B
   section 118-110
   section 118-175

Related Public Rulings (including Determinations)
Taxation Determination TD 51

ATO Interpretative Decisions overturned by this decision
ATO ID 2002/900 (withdrawn)

Keywords
Capital gains tax
CGT event A1-disposal of a CGT asset
CGT main residence exemption
Dependent children
CGT choice

Business Line:  Office of the Chief Tax Counsel

Date of publication:  13 November 2002

ISSN: 1445-2782