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Edited version of your written advice
Authorisation Number: 1051326121621
Date of advice: 19 January 2018
Ruling
Subject: Main residence exemption
Question 1
Will you be able to claim the R house as your main residence?
Answer
No
This ruling applies for the following period(s)
Year ending 30 June 2018
The scheme commences on
1 July 2017
Relevant facts and circumstances
You and your spouse have resided at a residence (C house) for many years.
You and your spouse jointly purchased another residence (R house) for the purposes of supporting your children who were attending university.
At the time of purchasing the R house, your X children were over 18 years of age.
You furnished the R house and paid all the costs in running the house when your children were attending university and before they commenced employment.
Some years after purchasing the R house one of your children resided in the R house.
When your child moved out of the R house another child moved into the R house and resided there with their family until the house was sold.
During the period that your children resided in the R, you and your spouse visited and stayed at the R house for extended periods. Prior to retiring, you operated a business with your sibling, allowing you to work one week and have one week off to visit your children.
You continue to have connections with the area in which the R house is located. You attend local sporting and cultural events in the area with your spouse and sporting groups in which you are associated with.
Your spouse participates in cultural activities and has undertaken a host of programs offered over the course of a week or courses requiring attendance at periodic intervals in the area surrounding the R house. You and your spouse enjoy the cultural life immediately near the R house.
You have confirmed that you and your spouse are members of various clubs and organisations located near the R house.
You have indicated that you spent around 20% to 30% of your time at the R house, spending a few days at a time prior to your retirement.
The R house was initially a 3 bedroom house, and you and your spouse stayed in a bedroom, before adding an addition to the R house. The new addition contains you and your spouse’s clothes and belongings and is furnished by you and is not rented out or used by any other family members. It is self- contained, but connected to the remainder of the R house and you are able to access all other rooms of the house.
The furnishings and belongings within the remainder of the R house are largely your adult children’s belongings, given the extensive times they have resided in the R house.
Initially when you first acquired the R house you and your spouse paid all the rates and other utility charges associated with the house, but as your adult children earned income, the costs associated with running the R house are jointly contributed by you and your adult children.
Following retirement, you and your spouse estimated spending 55 to 65% of your time at the R house.
Over the period in which you have owned the R house you have spent considerable time with your grandchildren. The R house was within a short walking distance to the local schools.
You and your spouse tended to stay a couple of days in the R house when visiting your family, particularly as you’ve got older and given that you don’t have to take many items with you as you have clothes and belongings at the R house.
On school holidays you would invite the grandchildren to your C house to spend time with you.
You have an interest in another property near the C house and this ties you to the C house as you regularly oversee this property.
You are entitled to vote in elections held in electorates in which the C and R houses are located, but you have stated that you are generally residing in the C house when the voting is open on weekends.
When your adult child moved out of the R house you decided to sell it as it was too large for you and your spouse and it required improvements.
You paid land tax on the R house when land tax system was introduced. You later declared the R house as your main residence and paid land tax on the C house as the value of the R house had grown substantially in recent years.
You still maintain your furniture, clothes and belongings at the C house and have not abandoned ownership of the C house while you have visited and resided in the R house. You socialise with family and friends at your C house.
You have now sold the R house.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 118-110
Reasons for decision
Summary
As you did not establish the R house as your main residence, you are not entitled to a full or partial main residence exemption
Detailed reasoning
A capital gain or capital loss will occur when a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event is CGT event A1 which occurs when a CGT asset is disposed of.
A capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if:
(a) you are an individual; and
(b) the dwelling was your main residence throughout your ownership period; and
(c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.
Generally, you can fully disregard a capital gain or capital loss made on the sale of a dwelling that is your main residence if:
● the dwelling was your home for the whole period you owned it; and
● the dwelling was not used to produce assessable income; and
● any land on which the dwelling is situated is not more than 2 hectares.
Whether a dwelling is your main residence depends on the facts of each case. The factors to be taken into account are set out in CGT Tax Determination Number 51: Capital Gains: what factors are taken into account in determining whether or not a dwelling is a taxpayer’s sole or principal residence (TD 51). These factors include the following:
● the length of time the taxpayer has lived in the dwelling
● the place of residence of the taxpayer's family
● whether the taxpayer has moved his or her personal belongings into the dwelling
● the address to which the taxpayer has his or her mail delivered
● the taxpayer's address on the Electoral Roll
● the connection of services such as telephone, gas and electricity
● the taxpayer's intention in occupying the dwelling
Dependent child having different main residence
Section 118-175 of the ITAA 1997 states that if a dwelling is your main residence and another dwelling is the main residence of a child of yours who is under 18 and is dependent on your for economic support, you must choose one of them as the main residence of both of you.
Partial main residence exemption
Section 118-185 of the Income Tax Assessment Act 1997 (ITAA 1997) states that if a dwelling was your main residence for only part of your ownership period, you will only get a partial exemption for a CGT event that occurs in relation to the dwelling. The capital gain or loss is calculated using the following formula:
Total capital gain or loss x Non –main residence days Total days in your ownership period Where: ● non-main residence days is the number of days in your ownership period when the dwelling was not your main residence, and ● the ownership period for capital gains tax purposes is from the date of settlement of the contract to purchase the property until the date of signing of the contract of sale of the property. |
Application to your circumstances
Based on the factual information you have presented, you have not established the R house as your main residence.
You have continued to reside in the C house throughout your ownership period and treated it as your main residence. You have not abandoned the C house as your common law principal place of residence. You have demonstrated that the R house has been occupied by you for periods throughout your ownership period for the purposes of:
● Spending time with your family and assisting your adult children with their child care needs.
● Enjoying quality time with your grandchildren and attending their school activities and safely helping them attend and leave school.
● Attending various sporting and cultural events, as well as exhibitions relating to your spouse’s interests.
You have continued to treat the C house as your main residence and not abandoned it as your main residence as demonstrated by:
● Continuing to maintain the C house while you have spent periods attending events or courses.
● Continuing to socialise with family and friends where your C house is located.
● Continuing to pay rates, insurance and utility costs associated with the C house, while at the same time your adult children who have occupied the R house have contributed a proportionate share of the utility and costs associated with the R house.
● During your pre-retirement you and your spouse would spend some time at the R house during the alternate week when you weren’t rostered on in your business.
● You invited your grandchildren to stay with you at the C house during the school holidays.
● When the land tax system was introduced, you considered the C house as your main residence. You then made the conscious decision to treat the R house as your main residence as a strategy to reduce land tax because the house prices were cheaper in the area where the C house was situated.
Conclusion
As you did not establish the R house as your main residence, you are not entitled to a full or partial main residence exemption.
As the R house was occupied by your children who were over 18 years of age, section 118-175 of the ITAA 1997 doesn’t apply and you cannot choose to treat the R house as the main residence of both of you.