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Edited version of your private ruling
Authorisation Number: 1012473948528
Ruling
Subject: CGT - main residence exemption
Question 1
Are you entitled to a full main residence exemption on the sale of your property?
Answer
No
This ruling applies for the following periods
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You purchased the property in 2000 with the intention to live in it.
The property was zoned commercial.
The property was more than 40 years old and needed renovating to make it liveable.
The property consisted of a shopfront and shop space on the lower level and offices on the top level.
For three years following the purchase, the property remained vacant as you were not in a financial position to renovate the property.
In 2004 you were able to slowly renovate the property as owner builder, and following completion of the renovation, you moved in.
You converted the top level into residential accommodation. You did not renovate the lower level.
The property was never used to produce assessable income.
You sold the property in year ended 30 June 2013.
GST was remitted on the sale of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 118-B
Income Tax Assessment Act 1997 subsection 118-115(1)
Reasons for decision
Detailed reasoning
Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) contains the capital gains tax (CGT) main residence exemption. The exemption disregards a capital gain or capital loss a taxpayer makes from a CGT event that happens to a dwelling, or their ownership interest in a dwelling, which is their main residence. The exemption may disregard all or part of any capital gain or capital loss, dependent on the circumstances surrounding the CGT event.
A capital gain or capital loss made from a CGT event that happens to a CGT asset
that is a dwelling, or a taxpayer's ownership in it, is disregarded if:
· the taxpayer is an individual
· the dwelling was the taxpayer's main residence throughout their ownership
period, and
· The interest did not pass to the taxpayer as beneficiary in or was not acquired by the taxpayer as trustee of a deceased estate.
'Dwelling' consists wholly or mainly of residential accommodation (subsection 118-115(1) of the ITAA 1997).
The meaning of the term 'dwelling was considered in Taxation Determination TD 1999/69:
2. The word 'dwelling' is defined in The Macquarie Dictionary as 'a place of residence or abode; a house'.
3. 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.'
In your case, the property was a commercial property with a shopfront on the lower level and offices on the top level. You eventually converted the upper level to residential accommodation during your period of ownership, however the bottom level was never converted to residential accommodation. We do not consider that the eventual conversion of approximately 50% of the property (the top level) meets the definition of 'dwelling' because the property was not wholly or mainly of residential accommodation.
Therefore, you are not entitled to the full main residence exemption on your sale of the property.