Edited version of private ruling

Authorisation Number: 1011623655739

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: work related expenses and capital gains tax (CGT)

1. Are you entitled to claim a deduction for expenses incurred in owning and maintaining your unit?

No.

2. Are you entitled to disregard any capital gain or loss made on disposal of your unit?

No.

This ruling applies for the following period:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You and your spouse live in a state or territory.

You jointly own a dwelling in that state or territory which you consider to be your main residence.

You work in another state or territory, and frequently return home.

With your spouse, you jointly purchased a unit in the other state or territory to provide you with a place to stay whilst there for work.

The unit has never been rented out to third parties and no rental income has been received.

You are seriously contemplated selling the unit in the foreseeable future.

Relevant legislation provisions:

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 102-20.

Income Tax Assessment Act 1997 Section 104-10.

Reasons for decision

Accommodation expenses

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, a deduction is not allowable for outgoings that are of a capital, private or domestic nature.

Generally, accommodation expenses are private in nature and are not deductible.

However, in Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166 the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case, it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income.

The issue of expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location was considered in FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case).

In Toms' Case, the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometres from his family home in Grafton. He claimed it was too far to travel each day to his work in the forest, so that it was necessary to establish a caravan at the camp. He would return home on weekends. He claimed the costs of maintaining his caravan and other living expenses such as the cost of heating and lighting. The Federal Court considered that the caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the forest, and its purpose was to enable him to retain his residence at Grafton although employed in the forest. It was held that the expenses incurred in relation to the temporary accommodation near the workplace while maintaining a family residence in another location were dictated not by his work but by private considerations, and therefore were not deductible.

In your case, you incur expenses in owning and maintaining your unit so that you have somewhere to live while you are at work. Accordingly, the expenses are a prerequisite to the earning of assessable income. They are incurred in order for you to be in proximity to your workplace but are not incurred in the course of gaining or producing your assessable income.

A deduction is therefore not allowable for the expenses incurred in owning and maintaining your unit under section 8-1 of the ITAA 1997.

Capital gains tax

You make a capital gain or a capital loss if and only if a CGT event happens to a CGT asset (section 102-20 of the ITAA 1997).

Under section 104-10 of the ITAA 1997, the disposal of a CGT asset causes a CGT event A1 to happen. You dispose of an asset when a change of ownership interest occurs from you to another entity. The disposal of a residential unit is a CGT event A1.

CGT exemptions

There are exemptions that allow a capital gain or loss to be disregarded. The one most relevant to your circumstances is the main residence exemption. Under the main residence exemption, any capital gain or loss you make from a CGT event that happens to a dwelling is disregarded if the dwelling was your main residence throughout the period you owned it. If you own multiple properties, you may only claim the main residence exemption on one property at a time.

In your case, you have stated that you own a dwelling in a state or territory which you consider to be your main residence. Therefore, as you cannot claim a main residence exemption on more than one property at a time, you cannot also apply this exemption to any capital gain or loss made on disposal of your unit in another state or territory.

Accordingly, as a CGT event A1 will occur when you sell the unit and a main residence exemption will not apply, any capital gain or loss made on the sale cannot be disregarded.