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Edited version of your written advice

Authorisation Number: 1051322027435

Date of advice: 22 December 2017

Ruling

Subject: Capital gains tax – main residence exemption – leasehold loss – deduction

Question

Is the capital gain or capital loss made on the termination of your leasehold agreement for your independent living unit disregarded?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 201Z.

The scheme commences on

1 July 201Y.

Relevant facts and circumstances

In 201X you entered into a leasehold agreement with a retirement village operator.

The leasehold agreement enabled you to lease a serviced apartment (the Dwelling) for a specific term commencing in 201X.

In 201X you resided in the Dwelling provided under the leasehold arrangement as your main residence.

Nearly two years later you asked for a termination of the leasehold agreement due to poor health.

Just over two years from the date you entered into the leasehold agreement with the retirement village operator, the leasehold of the Dwelling was disposed of.

The retirement village operator deducted from your termination payout figure:

From the sale of the dwelling you made a capital loss of approximately $X.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 104-25

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-130

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Summary

Based on the information provided, any capital loss made from the disposal of your ownership interest in the Dwelling occupied as your main residence will be disregarded under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) and as a result you will not be able to include the capital loss in your tax return.

Detailed reasoning

Paragraph 79 of Taxation ruling 2002/14 Income tax: taxation of retirement village operators (TR 2002/14) states that:

In your case you purchased a right to occupy a dwelling under a leasehold agreement with a retirement village. This right to occupy the dwelling constitutes an ownership interest in the dwelling for the purposes of the main residence provisions.

You used this right (to occupy), to reside in the Dwelling provided under the leasehold arrangement as your main residence.

After a short period of time you requested a termination of your leasehold agreement from the retirement village.

Upon termination of the leasehold agreement you made a capital loss.

Any capital loss made from the disposal of your ownership interest in the Dwelling occupied as your main residence will be disregarded and cannot be used to offset other capital gains.


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