Edited version of private advice

Authorisation Number: 1052007412762

Date of advice: 20 July 2022

Ruling

Subject: CGT - main residence exemption

Question 1

Can you claim an additional XX% main residence exemption (ie, XX% total) for the 2^nd apartment where you kept your personal belongings, periodically maintained your personal living, and where your parent resided?

Answer

No.

Question 2

Can you increase the cost base for holding and other costs not otherwise claimed in income tax returns for the purpose of calculating CGT on the sale?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your siblings are in a partnership.

The partnership purchased a property in XXX.

The property consisted of 1 building split into 4 apartments.

These were held in one line and not strata units.

At the time of purchase, you and your parent lived in XX% of the building, with the remaining XX% (ie, 2 apartments) being rented.

You lived in apartment 1 and your parent lived in apartment 3.

Apartment 1 and 3 were not joined and apartment 2 was in-between 1 and 3.

You lived in apartment 1 and your parent lived in apartment 3 from XXXX to XXXX.

You moved between apartment 1 and 3 while your parent was living at the building.

You generally slept in apartment 1 and had personal items in apartment 3 where your parent lived.

You occasionally also slept in apartment 3 and periodically prepared and ate meals, undertaking general living, and maintaining your person (shower, toilet, dressing, etc) in both apartments 1 and 3 from date of purchase to XXXX.

Your parent moved out of the apartment.

You continued to live in apartment 1 and 3 apartments were then being rented out from XXXX to XXXX.

The partnership claimed deductions for XX% of the holding and other costs between XXXX and XXXX with the remainder deemed private.

The partnership claimed deductions for XX% of the holding and other costs between XXXX and XXXX with the remainder deemed private.

The building was sold as a whole on 1 contract, with exchange taking place in the 20XX-XX income year and settlement in in the 20XX-XX income year.

You wish to reduce the cost base when calculating any capital gain or loss the non-capital holding costs which you have not claimed as a deduction in previous tax returns.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-120

Income Tax Assessment Act 1997 Section 118-115

Reasons for decision

Under section 118-110 of the Income tax Assessment Act 1997 (ITAA 1997) you can generally disregard a capital gain or capital loss you make from the disposal of a dwelling that qualifies as your main residence when the dwelling was your main residence for the whole period you owned it, and your interest in the dwelling 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.

Also, under section 118-120 of the ITAA 1997, to get the full exemption from CGT any land on which the dwelling is situated must be two hectares or less.

Generally, access to the exemption is based on the common law definition of main residence. This definition may be extended or limited by other provisions in Subdivision 118-B of the ITAA 1997.

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 (section 118-115 of the ITAA 1997).

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 Income tax: capital gains: can the term 'dwelling' as defined in

section 118-115 of the Income Tax Assessment Act 1997 include more than one unit of accommodation? outlines the factors relevant in considering whether units of accommodation are used together as one place of residence or abode. These include:

(a)  whether the occupants sleep, eat and live in them;

(b)  the distance between and the proximity of the units of accommodation;

(c)   whether the units are connected;

(d)  whether the units are capable of being sold separately;

(e)  the extent to which the daily activities of the occupants in the units are integrated;

(f)    how the units are shared by the occupants; and

(g)  how costs of the units are shared by the occupants.

You lived in apartment 1 and your parent lived in apartment 3.

You also used apartment 3 to sleep in from time to time and for daily living.

Looking at the factors set out in TD 1999/69 apartment 3 will not be exempt from CGT under the main residence rules as apartment 3 was separate from apartment 1 with apartment 2 in between.

Each apartment is a separate and distinct dwelling.

You lived and slept in apartment 1 with occasional sleeping and living in apartment 3 where your mother lived consequently apartment 1 was your main residence.

You cannot have the main residence exemption for apartment 3 because it was never your main residence.

Taxation Determination 2005/47 Income tax: what do the words 'can deduct' mean in the context of those provisions in Division 110 of the Income Tax Assessment Act 1997 which reduce the cost base or reduced cost base of a CGT asset by amounts you 'have deducted or can deduct', and is there a fixed point in time when this must be determined? states you 'can deduct' an amount for the purposes of a provision in Division 110 of the ITAA 1997 at a particular time if:

• the terms of the relevant deduction provision have been satisfied in respect of the amount; and
• the deduction is not prevented by the expiry of amendment periods prescribed by section 170 of the Income Tax Assessment Act 1936 (ITAA 1936).

You are able to include holding costs in the cost base (to the extent you have not claimed and cannot claim a deduction for them) to reduce your capital gain in relation to the property.