Edited version of private advice

Authorisation Number: 5010069391884

Date of advice: 07 September 2020

Ruling

Subject: Capital gains tax, dwelling and main residence exemption

Question 1

Would the two adjoining residential units qualify as a dwelling for the purposes of section 118-115 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.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? considers whether the term defined as dwelling under section 118-115 of the ITAA 1997 can include more than one unit of accommodation.

Factors relevant in determining whether units of accommodation are used together as one place of residence or abode include:

(a) whether the occupants sleep, eat 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 costs of the units are shared by the occupants.

Based on the facts and circumstances we consider that the two adjoining residential units qualify as one dwelling for the purposes of section 118-115 of the ITAA 1997.

Question 2

Would the capital gain made in relation to the disposal of the two adjoining residential units be disregarded under section 118-195 of the ITAA 1997?

Answer

Yes. Pursuant to section 118-195, if a dwelling passes to you as a beneficiary or a trustee of a deceased estate, a capital gain or capital loss you make from a CGT event that happens in relation to a dwelling is disregarded if:

a)    the deceased acquired the dwelling on or after 20 September 1985; and

b)    the dwelling was the deceased's main residence just before their death and was not then being used for income producing purposes; and

c)    your ownership interest in the dwelling ends within 2 years of the deceased's death.

Practice Statement PS LA 2003/12 treats the trustee of a testamentary trust in the same way as a legal personal representative.

Therefore, the conditions outlined in section 118-195 are met and the capital gain made on the disposal of the units will be disregarded.

This ruling applies for the following period:

30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

The deceased passed away on x August 20xx.

The deceased owned two apartments being Apartment A and Apartment B.

Apartment B was purchased by the deceased in April 20xx and at that time it was a three bedroom apartment.

Apartment A was purchased by the deceased in June 20xx.

The contract to purchase Apartment A was conditional upon the deceased obtaining permits and approvals to combine it with his existing Apartment B.

Settlement of Apartment A occurred in December 20xx when the relevant approvals were obtained, and the deceased commenced works in June 20xx to combine the two apartments.

A summary of the building works is outlined below.

·   An internal doorway in the study was constructed to join the two apartments internally.

·   An external doorway was constructed to join the two apartments externally via the balcony.

·   Two bedrooms in Apartment B were converted into living and study areas.

·   Apartment A retained its three existing bedrooms.

The deceased used both apartments as one single unit of accommodation with Apartment B containing a bedroom and the living areas and Apartment A containing the other bedrooms.

The dining room in Apartment A was used as the main dining room containing the main dining table.

The deceased slept in the master bedroom which was in Apartment B and used the bathing facilities which were in Apartment A.

The deceased entertained family and friends in the entertaining areas and he frequently had visitors from overseas stay.

The deceased's grandchild also stayed for a period of time while they completed high school studies.

There were telephone and data outlets in both units. The telephone and internet services were invoiced on a single bill and metered as if for a single unit.

All other utilities came on separate bills.

The combined apartment was the deceased's main residence from its acquisition until the deceased's date of death and it was not being used for income producing purposes.

In accordance with the terms of the deceased's Will, the apartments passed to two testamentary trusts as joint tenants on xx March 20xx.

Both units were marketed as a single home and the trustees of the testamentary trusts sold both units to the one buyer. The contract of sale was executed on xx April 20xx.

Relevant legislative provisions

Section 118-115 of the Income Tax Assessment Act 1997

Section 118-195 of the Income Tax Assessment Act 1997

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