Edited version of private advice

Authorisation Number: 1052283473714

Date of advice: 31 July 2024

Ruling

Subject: CGT - main residence exemption

Question

Can you claim the main residence exemption for both units under section 118-115 of the Income Tax Assessment Act 1997 (ITAA 1997) for the periods from May 20XX to November 20XX and from March 20XX to September 20XX when both units were used solely as your family's private residence?

Answer

Yes, to the extent you are not claiming the main residence exemption for Property Y at the same time.

This ruling applies for the following period:

Income tax year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.    You purchased the Units in December 20XX and settled in March 20XX.

2. The properties are 2 units on separate titles.
3. The Units were both sold in August 20XX.
4. The Units are not able to be accessed internally.
5. You are a joint owner (XX%) of the Units with your spouse.
6. You used the Units as your main residence from May 20XX to November 20XX and from March 20XX to September 20XX.
7. Between December 20XX and February 20XX you owned another property (Property Y) which was used as your main residence.
8. Both units were rented as one property for approximately XX months during the ownership period.
9. The Units were rented separately for XX months during the ownership period.
10. You have outlined the use of the Units below:

•         the Units had shared areas, a common connection to the decks and the Units were often accessed via the back doors.

•         the Units shared a wall and looked into each other but could not be accessed internally.

•         Unit 1 was used for sleeping and Unit 2 was used for the living spaces. Furniture was located in both Units.

•         the Units were not rented during the period of residence.

•         you had family and friends stay at the Units on a couple of occasions.

•         you and your spouse had keys to both Units.

•         there were no children residing at the Units during the 20XX period and there was a XX year old residing at the Units during the 20XX period.

Relevant legislative provisions

Section 118-110 of the Income Tax Assessment Act 1997

Section 118-115 of the Income Tax Assessment Act 1997

Section 118-140 of the Income Tax Assessment Act 1997

Section 118-145 of the Income Tax Assessment Act 1997

Section 118-185 of the Income Tax Assessment Act 1997

Reasons for decision

Issue 1

Question 1

Summary

The Units are considered 1 dwelling under section 118-115 of the ITAA 1997.

You are exempt from capital gains tax under section 118-110 of the ITTA 1997 for the period you used the Units as your main residence but not for any period you are also treating your previous main residence as exempt from capital gains tax. If that is the case, you only get an exemption for the period commencing from when your previous main residence was sold.

Detailed reasoning

You get an exemption from capital gains tax (CGT) in relation to a dwelling that is your main residence. This is called the main residence exemption (section 118-110 of the ITAA 1997).

You only get a partial exemption if the dwelling was used as your main residence for part of the period of ownership (section 118-185 of the ITAA 1997).

When you buy a new main residence you can continue to treat your previous main residence as exempt from CGT for a period of up to 6 months while you sell that residence. This is provided you lived in your previous main residence for a continuous period of 3 months in the 12 months period prior to its sale. Your new main residence is also treated as being exempt from GCT during this time (section 118-140 of the ITAA 1997).

Otherwise, you can only claim the main residence exemption for one property at a time (section 118-145 of the ITAA 1997).

The testing for determining whether a dwelling is a main residence is contained in Subdivision 118-B of the ITAA 1997.

'Dwelling' is defined in subsection 118-115(1) of the ITAA 1997 to include::

a)    a unit of accommodation that:

                      i.        is a building or is contained in a building; and

                     ii.        consists wholly or mainly of residential accommodation; and

b)    a unit of accommodation that is a caravan, houseboat or other mobile home; and

c)    any land immediately under the unit of accommodation.

'Dwelling' is not otherwise defined and so takes on its ordinary meaning. The Macquarie Dictionary defines 'dwelling' as 'a place of residence or abode; a house'.

In Campbell v O'Sullivan [1947] SASR 195 at 201, May J stated that:

..."dwelling" ordinarily signifies a place of abode or residence, a tenement, habitation, or house, which premises a person or persons are using as a place for sleeping and usually for the provision of some meals.

Taxation Determination TD 1999/69 Income tax: capital gains: can the term 'dwelling' as defined in section 118-115 of the Income Tax Assessment Act 1997 include more than one unit of accommodation? (TD 1999/69) confirms that the term 'dwelling' as defined in section 118-115 of the ITAA 1997 can include more than one unit of accommodation where the units of accommodation are used together as one place of residence or abode.

Whether two or more units of accommodation are used together as one place of residence or abode for the purposes of the definition of 'dwelling' is a question of fact that depends on the particular circumstances of each case.

Paragraph 4 of TD 1999/69 provides the following factors as relevant in considering whether multiple units of accommodation may be considered one residence or abode:

a)    whether the occupants sleep, at and live in them;

b)    the distance between and the proximity of the units of accommodation';

c)    whether the units are connected;

d)    whether the units are capable of being sold separately;

e)    the extent to which the daily activities of the occupants in the units are integrated;

f)     how the units are shared by the occupants; and

g)    how the costs of the units are shared by the occupants.

The presence or absence of any of these factors are not necessarily determinative as all the facts and circumstances of each particular case needs to be considered as a whole.

Application to your circumstances

Weighing up the factors in para 4 of TD 1999/69 we consider both units were genuinely used together as one place of residence meaning the units are considered one dwelling when applying the main residence exemption in section 118-110 of the ITAA 1997.

In your circumstances, you only occupied the Units as your main residence for part of the period of ownership. This means section 118-185 of the ITAA 1997 applies and you can only get an exemption from capital gains tax on a pro rata basis representing the period you resided in the units. You resided in the Units from May 20XX to November 20XX and March 20XX to September 20XX.

Between December 20XX and February 20XX you owned another property (Property Y) which was used as your main residence and this property has since been sold. If you have treated this property as your main residence for the purposes of the main residence exemption whilst residing in the Units and awaiting sale, you cannot claim the main residence exemption for the Units during this changeover period (section 118-145 of the ITAA 1997).

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