Edited version of private advice

Authorisation Number: 1051995892397

Date of advice: 13 July 2022

Ruling

Subject: CGT - trust property disposal

Question

Will the main residence exemption in section 118-110 of the Income Tax Assessment Act 1997 be available to you if you owned the dwelling as Trustee of the Trust?

Answer

No.

This ruling applies for the following period:

Period ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are the company trustee for the Trust.

You as Trustee of the Trust, purchased a residential property (dwelling) in 20XX.

The beneficiaries of the Trust (A and B) have occupied the dwelling as their main residence since it was purchased; and they haven't had a main residence elsewhere during this period.

The dwelling has not been used to produce income. No deductions have been claimed for the costs of maintaining the dwelling.

Beneficiary A died in February 20XX.

You as Trustee of the Trust sold the dwelling which is a trust property with a contract date in April 20XX.

Your tax agent indicated that the Trust has other beneficiaries who are not expected to receive a distribution from the sale of the dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 118-110(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified.

Main residence exemption

Subsection 118-110(1) provides that 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 trustee of, the estate of a deceased person.

The first condition requires that the owner must be an individual. The definition of an individual is provided in subsection 995-1(1) where it states an individual means a natural person.

The Macquarie Dictionary (Online) defines a natural person as an 'individual human being (as opposed to an artificial person)'.

Subsection 995-1(1) also defines a company to be a body corporate, any other unincorporated association, or body of persons. Under this definition a company cannot be an individual.

Disposal of a CGT asset - CGT event A1 in section 104-10

CGT event A1 happens if you dispose of a CGT asset - subsection 104-10(1). You dispose of the asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner - subsection 104-10(2).

Relevantly, the time of the event is when you enter into the contract for the disposal - subsection 104-10(3). You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base - subsection 104-10(4).

Application to your circumstances

In this case, CGT event A1 happened to you when you disposed of the dwelling which is a trust property.

As a company trustee, you are not an individual as defined in the tax law.

In your capacity as a company trustee, it is not possible for you to occupy the dwelling and use it as your main residence throughout your ownership period.

Although you did not acquire the dwelling as trustee of the estate of a deceased person, you do not satisfy the other conditions.

Therefore, the main residence exemption will not be available to you in your capacity as company trustee of the Trust because you do not satisfy all of the conditions in subsection 118-110(1). Any capital gain or loss you made from the disposal of the dwelling will not be disregarded.