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Edited version of private advice
Authorisation Number: 1052029225394
Date of advice: 6 September 2022
Ruling
Subject: CGT - main residence exemption
Question
Will the property, that was legally owned by the taxpayer but they never lived in it and was purchased for their child to use as their main residence, be exempt from Capital Gain Tax on disposal under section 118-110 of the Income Tax Assessment Act 1997?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
XX Month 20XX
Relevant facts and circumstances
This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The taxpayer purchased a residential property (the Property) for their child under their own name.
A loan on the Property was also established under the taxpayer's name.
The taxpayer's child:
• lived in the Property with their family and treated the Property as their main residence;
• paid the mortgage on the Property;
• paid for all outgoings
The Property was sold in month 20XX.
The taxpayer never resided in the Property and has a main residence besides the Property.
Relevant legislative provisions
Income Tax Assessment Act 1997section 102-20
Income Tax Assessment Act 1997section 104-10
Income Tax Assessment Act 1997section 108-5
Income Tax Assessment Act 1997section 118-110
Income Tax Assessment Act 1997section 118-130
Reasons for decision
Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997.
Section 102-20 provides that you make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. Section 108-5 lists land and buildings as CGT assets.
Under section 104-10, a CGT event A1 occurs when you dispose of a CGT asset to someone else.
Main Residence exemption:
Subdivision 118-B allows taxpayers to ignore a capital gain or loss made from a CGT event that occurs with regards to a dwelling that is their main residence (main residence exemption).
The basic rules that must be satisfied in order for a taxpayer to be eligible for the main residence exemption are provided in section 118-110. Specifically, subsection 118-110(1) provides that a capital gain or loss from a CGT event in relation to a taxpayer's main dwelling, or ownership interest in it, is disregarded if:
- the taxpayer is an individual; and
- the dwelling was the individual's main residence throughout the ownership period, and
- the interest did not pass to the individual as a beneficiary in, and was not acquired as a trustee of, a deceased estate.
Where a taxpayer has a contract for a CGT event happening to land or dwelling, subsection 118-30(3) provides that their ownership interest continues until their legal ownership of the land or dwelling ends.
As the Property has never been established as the taxpayer's main residence, section 118-110 will not apply to exempt any capital gain or loss that results from the disposal of the Property from being assessable in the year it was disposed.