Edited version of private advice

Authorisation Number: 1052028758605

Date of advice: 5 September 2022

Ruling

Subject: Capital gains tax

Question

Is Company A liable for capital gains tax (CGT) on the disposal of the property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The property was purchased by Company A with settlement during the 20XX income year.

Person A is the sole director and shareholder of the company.

At the time of purchasing the property, Person A was in Australia on a temporary business visa.

Person A acted on their own when they purchased the property.

Person A believed that all their property purchases had to be made in the name of the company.

The intended use of the property was always for it to be the permanent place of residence for Person A and their family.

Person A and their family moved into the property immediately after settlement and remained living in the property until it was sold. The sale contract was signed during the 20XX income year and settlement occurred during the 20XX income year.

At the time of selling the property, Person A was a permanent resident of Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Section 102-20 of the ITAA 1997 provides that you may make a capital gain or loss when a CGT event happens to a CGT asset. Property is a CGT asset.

Under section 104-10 of the ITAA 1997 a CGT event A1 takes place when you dispose of a CGT asset if a change of ownership occurs from you to another entity.

When the property is sold, a change in ownership occurs and a CGT event A1 takes place.

Section 118-110 of the ITAA 1997 outlines the criteria for the main residence exemption. Generally, you can disregard a capital gain or loss from a CGT event that happens to your ownership interest in a dwelling if:

•         you are an individual

•         the dwelling was your main residence for the whole period it was owned

•         you have not used the dwelling to produce assessable income, and

•         any land on which the dwelling is situated on and adjacent to is two hectares or less.

The definition of an individual is expressed in subsection 995-1(1) of the ITAA 1997. It is defined as a natural person. According to The Macquarie Dictionary (Online), a natural person as an 'individual human being (as opposed to an artificial person)'. The meaning of individual necessarily requires the entity to be a natural human being given the normal definition of the term. Under this definition a company, while being a legal person, cannot be considered a natural person.

Company A is not an individual as set out in subsection 118-110(1) of the ITAA 1997.

As the property is not owned by an individual, the main residence exemption, under section 118-110 of the ITAA 1997, does not apply.

We acknowledge Person A's statement that they made a mistake when the property was purchased because they incorrectly believed that all their property purchases needed to be made in the name of the company. However, the law must be applied to the events and circumstances that have transpired rather than those that would have transpired if the correct information had been known and a different decision had been made. Also, there is not sufficient evidence to be able to conclude that the company held the property on trust.

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