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Ruling

Subject: Main residence exemption - two units of accommodation

Will both units of accommodation be considered to be one dwelling for the purposes of the main residence exemption?

No.

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You own two dwellings (dwelling A and dwelling B).

The dwellings are held on separate titles which are both in your name.

The dwellings are separated by a road and are approximately a five to ten minute drive apart.

You are currently residing in dwelling A.

You are looking at long term planning in relation to both of these dwellings and your future family relations. Under your long term plan:

· you, your spouse and children would reside in dwelling B

· your other relatives would reside in dwelling A when they reach a point whereby they need your care. Dwelling A is designed for the aged as it has a smaller floor space and easy access to shopping facilities

· dwelling B is designed for your immediate family as it has a larger floor space, each child will have a designated bedroom in the dwelling, it is close to a school and childcare by other relatives

· during the daytime your children would be placed in dwelling A for childcare by your other relatives

· during the evening you, your spouse and children will stay in either dwelling depending on whether your children want to spend time with their other relatives or with you and your spouse

· you would incur and pay the expenses for both dwellings

· the time spent eating meals and enjoying recreational time in both dwellings would be divided equally

· utilities such as gas and electricity in respect of both dwellings would be connected in your name and you would be the person who will incur and pay the utility bills

· the reason for having two units of accommodation is that a mega house is too expensive and having other relatives, spouse and children located in close proximity but not under the same household strikes the perfect balance in terms of managing family relationships

· the dwellings are able to be sold separately and you may sell them at different times depending on market conditions.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision

As a general rule, you can disregard any capital gain or capital loss realised on the disposal of a dwelling that was your main residence.

To be entitled to the full exemption:

· the dwelling must have been your home for the whole period you owned it

· the dwelling must not have been used to produce assessable income, and

· any land on which the dwelling is situated must be two hectares or less.

Taxation Determination TD 1999/69 considers the situation where more than one unit of accommodation can constitute a dwelling for the purposes of the main residence exemption.

Generally, if the buildings are used together as one place of residence or abode they will be considered as one main residence.

The question of whether they are considered one place of residence is a question of fact and will be determined by considering a number of factors including:

· whether the occupants sleep, eat and live in them

· the distance between and the proximity of the units of accommodation

· whether the units are connected

· whether the units are capable of being sold separately

· the extent to which the daily activities of the occupants in the units are integrated

· how the units are shared by the occupants, and

· how costs of the units are shared by the occupants.

In your situation:

· you, your spouse and children will reside mostly in dwelling B, each child having a designated bedroom in dwelling B. Your relatives will reside mostly in dwelling A. Although you will spend time sleeping, eating and enjoying leisure activities in both of the dwellings, you have not sufficiently shown that both of the dwellings will be used as one place of residence

· you have stated that property B is designed for your immediate family as it has a larger floor space and is close to an elite school and childcare by other relatives whereas dwelling A is designed for the aged as it has a smaller floor space and easy access to shopping facilities. You have also stated that having other relatives, spouse and children located in close proximity but not under the same household strikes the perfect balance in terms of managing family relationships. Both of these statements infer that the dwellings will be used separately rather than together as one place of residence or abode

· the dwellings are situated approximately a five to ten minute drive apart and are not connected in any way. The distance between the dwellings is considerable and does not support the fact that that both dwellings will be used in conjunction with one another

· the dwellings are capable of being sold separately and you may possibly sell them at different times depending on market conditions.

Therefore, it is considered that dwelling A and dwelling B are two separate units of accommodation and the main residence exemption will not apply to both dwellings.

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