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Edited version of your written advice
Authorisation Number: 1051360253273
Date of advice: 12 April 2018
Subject: Capital gains tax - main residence
Question
Can you apply the capital gains main residence exemption equal to your proportional ownership interest for your property?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and your three siblings received an equal share in an inheritance from the estate of your parent.
You, with the consent of your siblings, used a significant portion of the inheritance to purchase a property in the 20XY income year.
You are the sole legal owner of the property.
A ‘Deed of Agreement’ (the deed) was made outlining that the property was being held by you, for the benefit of you and your three siblings.
The deed states that you hold 75% interest in the property on behalf of the beneficiaries. The remaining is held by you.
Upon sale of the property, the deed outlines that the proceeds of the sale (less expenses) shall be divided between yourself and the beneficiaries.
The property has recently been sold.
You have made a capital gain on the sale of the property.
You resided in the property as your main residence for approximately 12 months.
Your spouse lived in a rental property during this time.
From date x, you moved in with your spouse in a rental property.
Two of your siblings, who are beneficiaries, moved into the property from date x. They did not pay any rent.
The property was not used for income producing purposes during your ownership period.
You do not own another property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-130
Income Tax Assessment Act 1997 Section 118-145
Reasons for decision
Under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997), you can disregard a capital gain or capital loss you make from a Capital Gains Tax (CGT) event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it if:
● you are an individual
● the dwelling was your main residence throughout your ownership period, and
● the property did not pass to you through a trust or a deceased estate.
The first element to consider is the meaning of ownership interest which is outlined in section 118-130 of the ITAA 1997. This definition includes land or a dwelling that you have a legal or equitable interest in. Where a property is purchased in the name of one person (legal owner) and another person makes a direct financial contribution to the purchase (equitable/beneficial owner), the property is presumed to be held in shares proportionate to the contributions made by each party.
In your case, although the property was purchased in your name, your siblings each contributed 25% of the purchase price for the property. There is a ‘Deed of Agreement’ in place outlining that upon sale of the property; the proceeds of the sale (less expenses) shall be divided between yourself and all beneficiaries. Therefore, you and your siblings each have a 25% ownership interest in the property and you will each be liable for the capital gain equivalent to your interest.
The second element to consider is the period in which the property was your main residence. Under section 118-145 of the ITAA 1997, if a property that was your main residence ceases to be your main residence, you may continue to treat it as your main residence even though you no longer live in it. If you do not use the property to produce income, you can treat the property as your main residence for an unlimited period after you cease living in it. If you make this choice, you cannot treat any other property as your main residence while you apply this section.
In your case, you had a 25% ownership interest in the property from the date it was purchased. As the property was your main residence from the beginning of your ownership period and you can apply the absence rule indefinitely as the property was not being used for income producing purposes. Therefore you are entitled to claim the full main residence exemption for your 25% capital gains liability. You are not liable for the remaining 75% capital gains liability for the property.