Edited version of private advice

Authorisation Number: 1052097516868

Date of advice: 8 June 2023

Ruling

Subject: Main residence exemption - trust

Question

Are you entitled to a main residence exemption in relation to the sale of the Property?

Answer

No.

This ruling applies for the following period:

Income year ending 30 June 2022

Relevant facts and circumstances

Following the death of their parent, Person A filed a family maintenance claim against the estate.

The family maintenance claim was settled by a Terms of Settlement. Under the terms of settlement the Property at that time owned by person A's surviving parent, was transferred to you to be held on trust for the benefit of Person A during their lifetime, and to be transferred on their death to their siblings.

The terms of the settlement allowed Person A to direct you to sell the Property in order to purchase substitute accommodation.

The property was Person A's main residence until you sold the property in 2022 in order to purchase substitute accommodation for Person A.

The trust established following the family maintenance claim is not a special disability trust.

Relevant legislative provisions

Section 106-50 Income Tax Assessment Act 1997

Section 118-110 Income Tax Assessment Act 1997

Section 118-195 Income Tax Assessment Act 1997

Section 118-218 Income Tax Assessment Act 1997

Reasons for decision

Question

Are you entitled to a main residence exemption in relation to the sale of the Property?

Summary

No. You are not an individual and you did not acquire the asset as the trustee of a deceased estate. The trust is not a special disability trust and the beneficiary Person A is not absolutely entitled to the asset. There are no provisions in the law that entitle you to the main residence exemption

Detailed reasoning

Main residence exemption - basic case

Section 118-110 of the ITAA 1997 details the basic case for the main residence exemption. It enables you to disregard a capital gain or loss made on the disposal of a dwelling, provided you are an individual, the dwelling was your main residence during your ownership period, and you have not used the dwelling to produce assessable income.

As you are not an individual you are not entitled to the main residence exemption in the basic case.

Absolutely entitled beneficiaries

Section 106-50 of the ITAA 1997 provides that a beneficiary that is absolutely entitled to a CGT asset as against the trustee will be treated as the owner of the asset if a CGT event happens to the asset. In this case, the beneficiary and not the trustee will be required to account for any capital gain or capital loss made on the disposal of the asset in the calculation of their net capital gain or loss to be included in their taxable income. If a beneficiary is absolutely entitled to a dwelling and meets the requirements of subdivision 118-B of the ITAA 1997 the main residence exemption will apply to the CGT event.

Draft Taxation Ruling TR 2004/D25 (TR 2004/D25) discusses the meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the ITAA 1997.

Paragraphs 21 and 22 of TR 2004/D25 state that a beneficiary has all the interests in a trust's asset if no other beneficiary has an interest/s in the asset. Such a beneficiary will be absolutely entitled to that asset as against the trustee for CGT purposes if the beneficiary can, ignoring any disability, terminate the trust in respect of that asset by directing the trustee to transfer the asset to them or to transfer it at their direction.

Paragraph 90 of TR 2004/D25 states that where there are multiple beneficiaries, absolute entitlement can only be established if the assets are fungible. Further, paragraph 99 states that where there are beneficiaries with successive interests such as a life tenant and remaindermen, none of the beneficiaries can establish absolute entitlement over the asset.

In your case, Person A's interest in the Property is that of a life tenant with their siblings being remaindermen beneficiaries. The asset is a dwelling and not fungible. Person A does not have absolute entitlement over the Property and section 106-50 of the ITAA 1997 does not apply.

Dwellings acquired from deceased estates

Section 118-195 of the ITAA 1997 provides that a main residence exemption will apply to beneficiaries or trustees of deceased estates when certain conditions are met. However, the interest in the dwelling must pass to you from a deceased estate or you own it as the trustee of a deceased estate.

While Person A's family maintenance claim arose following the death of their parent, you are not the trustee of a deceased estate and the dwelling has not passed to any individual as the beneficiary of a deceased estate. Section 118-195 of the ITAA 1997 does not apply to you.

Special disability trusts

Section 118-218 of the ITAA 1997 provides that the trustee of a special disability trust may treat themselves as an individual and access the main residence exemption for an asset if certain conditions are met. A special disability trust is a type of trust as defined by the Social Security Act 1991 or the Veterans' Entitlement Act 1986.

You have confirmed that you are not the trustee of a trust within the meaning of either of the above statutes. Section 118-218 does not apply to you.

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