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Ruling

Subject: Capital gains tax - main residence exemption

Question 1

In your circumstances, are two units of accommodation able to be treated as a dwelling for the purposes of the main residence provisions?

Answer

No

This ruling applies for the following period

Year ended 30 June 2013

The scheme commences on

1 July 2012

Relevant facts and circumstances

You own a principal place of residence (property A). You also own a property which is the main residence of your child (property B). These properties are in adjoining suburbs.

Property B was purchased to be the main residence of your child as you are unable to live together due to your child's medical condition.

You do not receive any rental income from property B. Your child pays general expenses such as rates, insurance premiums, internet, electricity, telephone, groceries and repairs and maintenance from there own income.

Your child now wishes to move to a larger property. Property B will be sold and the proceeds used to purchase property C, which will become the main residence of your child.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) states that If a dwelling is your main residence for your entire ownership period any capital gain or loss realised on the disposal of the property is disregarded.

Taxation Determination TD 1999/69 considers the situations where more than one unit of accommodation can constitute a dwelling for the purposes of the main residence exemption.

Where two units of accommodation are treated as a dwelling for the purposes of section 118-110 of the ITAA 1997 and provided they are disposed of under one CGT event any capital gain or loss realised on the two units of accommodation is disregarded.

Taxation Determination TD 1999/69 considers that when two or more units of accommodation are used together as one place of residence or abode for the purposes of the definition of 'dwelling', it is a question of fact that depends on the particular circumstances of each case. Factors relevant in considering 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.

In your case, you are the legal owner of your own main residence. You are also the owner of your child's main residence in an adjacent suburb. These units of accommodation would not be considered one place of residence or abode for the following reasons:

· you and your child reside in the dwellings separately of each other;

· the dwellings are located some distance apart;

· the dwellings are not connected, and could not in any way be connected;

· the dwellings are capable of being sold separately; and

· the running costs of the dwellings are paid separately by the individual occupants.

Example 4 of TD 1999/69 can be directly related to your circumstances:

Example 4

11. Margaret and Andrew own a home at 10 Smith Street. They also own a house at 12 Smith Street. This house is occupied by their twin daughters, Celia and Sarah, who are both 24 years of age. Both daughters have full time work. The daughters do not pay rent to their parents and all maintenance costs of the houses are paid for by Margaret and Andrew. Celia and Sarah pay for the daily running costs of the house at 12 Smith Street and all of their food costs. They each have a busy social life but occasionally share a meal with their parents.

12. Each house is a separate dwelling in terms of section 118-115.

This example relates to your situation as you both pay for your own expenses and your child does not pay you any rent. Note however that these properties are not considered the same dwelling even though they are adjacent, whereas your properties are some distance apart.

Your child's main residence is therefore not considered part of your main residence for capital gains tax purposes, and will be subject to capital gains tax upon its disposal.