Edited version of private ruling

Authorisation Number: 1011691115375

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Ruling

Subject: CGT Main residence exemption: ownership interest - share in company

Question 1

Can you disregard the capital gain made from the transfer to a trust of a share in a company that gives you the right to live in a specific home unit?

Answer

Yes.

Question 2

Can you disregard the capital gain made from the transfer to a trust of a share in a company that gives you the right to live in a specific home unit?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You purchased a share in a company which was the legal owner of a number of dwellings.

Your share in the company gives you the right to occupy a specific dwelling.

You have occupied the specified dwelling as your main residence.

You intend to transfer your share in the company to a family trust.

You purchased your share after 20 September 1985.

You are not the sole beneficiary of the trust.

The family trust is not a unit trust.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 104-60

Section 109-5

Section 118-110

Section 118-130

Reasons for decision

Ownership interest in land or a dwelling  

An ownership interest in land or a dwelling is defined in section 118-130 of the Income Tax Assessment Act 1997 (ITAA 1997) to include:

a share in a company that owns a legal or equitable interest in the land on which the home unit is erected and that gives you a right to occupy it. (subparagraph 118-130(1)(c)(iii) )

You have an ownership interest in a dwelling because the share that you own in a company that is the legal owner of a number of dwellings gives you the right to occupy the dwelling.

Transferring a CGT asset to a trust

Section 104-60 defines CGT event E2. CGT event E2 happens if a taxpayer transfers a CGT asset to an existing trust. The time of CGT event E2 is when the asset is transferred.

CGT event E2 does not happen if you are the sole beneficiary of the trust and you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and the trust is not a unit trust.

You intend to transfer the share that gives you the right to occupy your dwelling into a family trust. You are not the sole beneficiary of the family trust, you will not have absolute entitlement to the asset as against the trustee and you are not transferring the asset to a unit trust. This asset transfer meets the definition of CGT event E2.

Main residence exemption

The main residence exemption allows a taxpayer to disregard a capital gain or loss that is made from a CGT event which happens to an ownership interest that is the taxpayer's main residence (section 118-110 of the ITAA 1997). For a taxpayer to qualify for full exemption:

· the taxpayer must be an individual

· the dwelling must have been the taxpayer's home (generally the disposal relates to a dwelling or an ownership interest in a dwelling)

· the dwelling was the taxpayer's main residence for the entire ownership period

· the taxpayer did not acquire the dwelling from a deceased estate, and

· the disposal resulted from one of a number specified CGT events, including event E2.

As a result of satisfying these requirements, you can apply the main residence exemption to the ownership interest.