Edited version of private advice

Authorisation Number: 1051955232928

Date of advice: 2 March 2022

Ruling

Subject: Main residence exemption

Question

Can the main residence exemption be applied to disregard a capital gain made in relation to the property owned by the company?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

Year ended 30 June 19XX

Relevant facts and circumstances

Individual A is the sole director and shareholder of the company.

The property was purchased in 19XX. On advice provided by the accountant at the time, it was placed in the name of the company.

The property was the director's primary place of residence.

An amount per week was paid by the director to the company to cover housing expenses such as rates and utilities.

From June 20XX to December 20XX the property was rented to the director's child for an amount per week.

From March 20XX to June 20XX the property was rented to various tenants with rent being paid to the company.

During this time the director was living with their spouse in a separate house.

After going through a divorce, the director moved back into the property from June 20XX and currently still resides there.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 120-20

Reasons for decision

Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset.

CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997).

Main residence exemption

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.

Section 118-110 of the ITAA 1997 explains the conditions that must be satisfied to apply the main residence exemption:

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:

(1) you are an individual; and

(2) the dwelling was your main residence throughout your ownership period; and

(3) 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.

Application to your circumstances

In this case, while the property was used by the director as their primary place of residence it was purchased by the company. When the property is sold a CGT event will occur for the company and any capital gain or loss made on the disposal of the property will be made by the company.

Section 118-110 of the ITAA 1997 can only apply to disregard a capital gain made by an individual. Therefore, the company cannot disregard any capital gain made on the disposal of the property under this provision.

While we appreciate your circumstances, the Commissioner does not have any discretion to allow a company to utilise the exemption in section 118-110 of the ITAA 1997.