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Edited version of your written advice
Authorisation Number: 1051322027435
Date of advice: 22 December 2017
Subject: Capital gains tax – main residence exemption – leasehold loss – deduction
Is the capital gain or capital loss made on the termination of your leasehold agreement for your independent living unit disregarded?
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:
● Deferred management Fee
● Long term maintenance Fund Fee
● Reinstatement costs
● Legal Fees
● Re-leasing Assistance Fee
● Outstanding service fees
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
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.
Paragraph 79 of Taxation ruling 2002/14 Income tax: taxation of retirement village operators (TR 2002/14) states that:
Where a retirement village dwelling becomes the main residence of a resident under any of the arrangements discussed in this Ruling, there will be no capital gains tax implications upon the subsequent disposal of the dwelling by the resident or by the estate of the resident. This is because the resident has an 'ownership interest' in the residential unit for the purposes of section 118-130 of the 1997 Act and, consequently, any CGT event in relation to that interest is disregarded under section 118-100 of the 1997 Act.
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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