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Edited version of your written advice
Authorisation Number: 1012763233841
Ruling
Subject: Capital gains tax
Question
Will two properties that have been renovated into one residence be exempt from capital gains tax under the main residence exemption?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on
1 July 2014
Relevant facts and circumstances
You have lived in a small one bedroom unit.
You purchased the flat next door and converted both units into a 2 bedroom flat.
You have lived in the units as a single residence.
You are about to retire and will sell the units.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-115
Reasons for decision
Generally, you ignore a capital gain or capital loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence.
To get the full exemption from CGT:
• the dwelling must have been your home for the whole period you owned it
• you must not have used the dwelling to produce assessable income, and
• any land on which the dwelling is situated must be two hectares or less.
Taxation Determination TD 1999/69 considers whether the term dwelling, as defined in section 118-115 of the Income Tax Assessment Act 1997 (ITAA 1997), can include more than one unit of accommodation. TD 1999/69 states that if the units of accommodation are used together as one place of residence or abode they can be considered a dwelling.
In this case, you utilise both units as a single residence. As per TD 1999/69 we consider both units to be a dwelling as defined in section 118-115 of the ITAA 1997. Therefore you are entitled to apply the main residence exemption to the units.