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Edited version of your written advice
Authorisation Number: 1013110804879
Date of advice: 7 November 2016
Ruling
Subject: Capital Gains Tax - Main Residence Exemption.
Question
Will the main residence exemption apply as though the title was in the name of A and B?
Answer
No
This ruling applies for the following period(s)
Year ended 30 June 201X
The scheme commences on
1 July 201X
Relevant facts and circumstances
A and B purchased a dwelling in 200X
A and B had insufficient borrowing power on their own to satisfy the bank's lending criteria.
X and Y went on the title of the dwelling and contributed equity to the purchase.
At or around the time of the purchase X and Y prepared Wills that gave the respective parent's interest in the dwelling directly to A.
A's parents never resided in the dwelling.
Since the purchase A and B have resided in the dwelling and treated it as their main residence.
All costs for the dwelling have been paid by A and B including (but not limited to) loan repayments, loan interest, council rates, water rates, insurances and significant capital improvements.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-5
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 108-7
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-185
Reasons for decision
Detailed Reasoning:
If you own a CGT asset and a change of ownership occurs from you to another person or entity, you are considered to have disposed of the asset.
When you dispose of a CGT asset, CGT event A1 happens. In the case of real estate, the time of the event is when the contract for the disposal is entered into. If there is no contract, the event occurs when the change of ownership takes place.
When a CGT event happens to a CGT asset you own, you make a capital gain or loss at the time of the event, depending on whether the capital proceeds from the CGT event are more or less than the cost base/reduced cost base of the CGT asset.
Where there is joint ownership of a CGT asset, any capital gain or loss made when a CGT event happens to that asset must be apportioned to each owner in accordance with their ownership interest.
In some cases, an exemption may apply that allows a taxpayer to reduce, or disregard (and therefore not include in their assessable income), any gain or loss made as a result of a CGT event. Where applicable, such exemptions are provided for by the tax law.
The Commissioner has no authority to allow a taxpayer to reduce or disregard any assessable gain outside of the exemptions that are provided for by the tax law.
The main residence exemption
In the case of a residential dwelling that has been disposed of, the CGT main residence exemption may apply in particular cases to allow individuals to reduce or disregard any gain made from the disposal of the dwelling.
This exemption is only available to a taxpayer who has disposed of a dwelling that was their main residence.
To be entitled to a full main residence exemption:
● the dwelling must have been your home for the whole period you owned it,
● you must not have used the dwelling (or the land on which it is situated and adjacent to) to produce assessable income, and
● the land on which the dwelling is situated must be 2 hectares or less.
A partial exemption may be available where any of the above conditions are not met, provided the dwelling has been your main residence for at least part of the period you owned it.
Taxation Ruling IT 2485 states that where a dwelling is not the sole or principal residence of all joint owners, the exemption provided on disposal (main residence exemption) is available only to the joint owner or each joint owner who occupied the dwelling as his or her sole or principal residence in respect of his or her share in the dwelling.
Application to your circumstances
The main residence exemption cannot be applied to your circumstances because your ownership interest in the dwelling has not been disposed of. The portion of the property that is subject to CGT is owned by other individual/s.
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