Edited version of private advice

Authorisation Number: 1051802439484

Date of advice: 16 February 2021

Ruling

Subject: CGT - main residence exemption

Question 1

Are you entitled to a full main residence exemption for the property?

Answer

No

Question 2

Are you entitled to a partial main residence exemption for the property?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You purchased a property in 20XX. At the time of purchase this property was registered on two titles for the upstairs area and the downstairs area.

You occupied the upstairs area as your principal place of residence (PPOR) for the full period of your ownership. The downstairs area was occupied by family members from 20XX to 20XX.

You and the family members accessed all areas and treated and used the property as one dwelling from 20XX to 20XX.

In 20XX the downstairs area was remodelled to make this area suitable and available for renting, as some of the family members had left the property.

The downstairs area was rented at market value for a short period of time during your ownership.

For a period of time, your family member returned to the property and resided in the downstairs area. During this time, you and all the family members used and treated the dwelling as one unit of accommodation.

You disposed of the property still registered as two titles in 20XX to one purchaser.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 115-25

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-120

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-190

Reasons for decision

Section 118-110 of the Income Tax Assessment Act 197 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a capital gains tax (CGT) event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it and must not have been used to produce assessable income.

For the purposes of the main residence exemption, a dwelling includes a unit of accommodation that is a building, or is contained in a building, and consists wholly or mainly of residential accommodation, a unit of accommodation that is a caravan, houseboat or other mobile home, and any land immediately under the unit of accommodation (section 118-115 of the ITAA 1997).

A dwelling can include more than one unit of accommodation if they are used together as one place of residence or abode.

Whether two or more units of accommodation are used together as one place of residence or abode for the purposes of the definition of 'dwelling' is a question of fact that depends on the particular circumstances of each case.

Taxation Determination TD 1999/69 outlines the factors relevant in considering whether units of accommodation are used together as one place of residence or abode. These include:

•         whether the occupants sleep, eat and live in them,

•         the distance between and the proximity of the units of accommodation,

•         whether the units are connected,

•         whether the units are capable of being sold separately,

•         the extent to which the daily activities of the occupants in the units are integrated,

•         how the units are shared by the occupants; and

•         how costs of the units are shares by the occupants.

Section 118-190 of the ITAA 1997 outlines that taxpayers will only get a partial exemption for a CGT event that happens in relation to their ownership interest in a dwelling if:

•         the dwelling was acquired after 20 September 1985, and it was used as the taxpayer's main residence,

•         the taxpayer used any part of the dwelling to produce income during all or part of the period they owned the dwelling; and

•         the taxpayer would have been allowed a deduction for interest incurred in relation to money borrowed to acquire the dwelling if they had incurred it (interest deductibility test).

Application to your circumstances

It is noted that the upstairs and downstairs parts of the property could be sold separately, and the downstairs was rented out for a period of time. However, the property was used as one place of residence for the majority of your ownership period. Taking into account all your circumstances and having regard to the factors set out in TD 1999/69, it is considered that the upstairs and downstairs together constituted a 'dwelling' for the purposes of section 118-115 of ITAA 1997.

In your case, you cannot claim the full main residence exemption, as part of the dwelling was used to produce assessable income for a period. Therefore, in accordance with section 118-190 of the ITAA 1997, you are entitled to a partial main residence exemption. Information on how to calculate a partial main residence exemption can be found by searching for 'QC 52191' on ato.gov.au. As you owned the dwelling for more than 12 months, you can also apply the 50% CGT general discount.