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Edited version of your written advice
Authorisation Number: 1012969810906
Date of advice: 15 February 2016
Ruling
Subject: Capital Gains Tax
Questions and answers
1. Is Property B considered to be part of your main residence of Property A?
Yes
2. Are you entitled to a partial main residence exemption in respect of Property B in relation to the period of time it was used together with Property A as one dwelling?
Yes
This ruling applies for the following periods:
Year ended 30 June 2015
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and your spouse purchased Property A as joint tenants, and has been your main residence until its disposal.
You and your spouse purchased Property B as joint tenants.
Property A and Property B are on separate titles.
Property B was rented to unrelated parties for many years.
Property B ceased to be rented and became occupied by an ageing family member until recently.
During the period that your relative occupied Property B no rent was charged and all expenses were paid for by you and your spouse.
During the period you owned the properties there was no fence between Property A and Property B.
Property B was used to garage you and your spouse's cars.
Property B housed laundry facilities and a clothes hoist for both properties.
Property A and Property B shared the same keys for security gates and doors.
Garden maintenance of both properties was undertaken at the same time and maintained by you and your spouse.
Property B was used as storage by you and your spouse.
After your relative vacated Property B you and your spouse continued to use it as an extension of Property A.
There was no fence between the two properties. There were no other properties in between Property A and Property B.
Property A and Property B were jointly marketed for sale, at the same time, and they were acquired by a single purchaser under a contract in 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-115
Income Tax Assessment Act 1997 Section 118-185
Income Tax Assessment Act 1997 Section 118-190
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a CGT event happening to a CGT asset in which you have an ownership interest.
Buildings and land are CGT assets as defined under section 108-5 of the ITAA 1997 and the disposal of a CGT asset triggers a CGT event under section 104-10 of the ITAA 1997. The most common event is CGT event A1 which occurs when you dispose of a CGT asset to someone. Subsection 104-10(5) of the ITAA 1997 provides that any capital gain or loss is disregarded if you acquire the asset before 20 September 1985.
Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or loss made from a CGT event that happens to a dwelling which is your main residence.
Section 118-185 of the ITAA 1997 states that if a dwelling is your main residence for only part of your ownership period, you will only get a partial exemption for any gain or loss arising from a CGT event that occurs in relation to that dwelling. The capital gain or loss is calculated using the formula submitted.
Taxation Determination TD 1999/69 Income tax: capital gains: can the term 'dwelling' as defined in section 118-115 of the Income Tax Assessment Act 1997 include more than one unit of accommodation? considers the situation where more than one unit of accommodation can constitute a dwelling for the purposes of the main residence exemption.
TD 1999/69 states that whether two or more units of accommodation are used together as one place of residence, for the purposes of the term dwelling as defined in section 118-115 of the ITAA 1997, is a question of fact that depends on the particular circumstances of each case.
Factors that are relevant in considering each case 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.
Your circumstances
In your case, you and your spouse purchased Property A as joint tenants, and has been your main residence until its disposal.
You and your spouse purchased Property B as joint tenants. Property B was rented to unrelated parties for many years. From 19YY, Property B ceased to be rented and was occupied by your ageing relative until 20XX.
During the period that your relative occupied Property B no rent was charged and all expenses were paid for by you and your spouse. Property B was used as an extension of your main residence to allow you provide appropriate supervision and care to your relative.
There was no fence between the two properties and there were no other properties in between these two properties. Both properties were commonly keyed, with one key opening security gates and doors on both properties. Laundry facilities for both properties were maintained at Property B. Garden maintenance of both properties was undertaken at the same time, and paid for solely by you.
Moreover, Property B was utilised to garage and maintain your vehicles. It was also used as storage.
Your ageing relative relocated to nursing care, Property B continued to be used as an extension of your main residence. Property A and Property B were jointly listed for sale at the same time, and acquired by a single purchaser under a contract in 20XX.
Conclusion
Based on the information provided, it is considered that you occupied Property A and Property B as one dwelling from 19YY until 20XX; therefore, Property B is part of your main residence.
You acquired Property B and immediately rented it out. It was rented out for many years; as a result, Property B was not your main residence for that period.
From 19YY, you used Property B as an extension of your main residence and integrated it with Property A so that the properties formed one dwelling. You and your family occupied both properties as one dwelling until disposal. Both properties were your main residence; therefore, you are entitled to a partial main residence exemption.