Edited version of private advice

Authorisation Number: 1052073138046

Date of advice: 23 December 2022

Ruling

Subject: CGT - main residence

Question

Can you disregard the capital gain made of the sale of the dwelling?

Answer

Yes.

It is accepted that you meet the conditions for the exemption under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) to apply to the capital gain made on disposal of the dwelling because:

• Person A moved into the dwelling as soon as practicable.
• It was Person A's main residence for their entire ownership period, and
• Person B has made the choice to treat the dwelling as their main residence during their ownership period.

Further information about your main residence can be found by searching 'QC 66028' on ato.gov.au

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

23 July 20XX

Relevant facts and circumstances

Person A and Person B (You) owned a dwelling (Dwelling A) in Victoria (VIC).

You and your three children had lived in Dwelling A for 10 years.

The house had a major issue which was not identified when you purchased it. It was only when you all became ill while living there that the problem was identified.

You spent a few years trying to rectify the problem without major works.

During the 20XX year, due to the COVID -19 pandemic and resulting lockdowns, your family were spending too much time in Dwelling A and becoming more unwell.

In January 20XX, you and your children moved out into a rental property (the Rental) situated near your older children's' school. You intended to undertake work on Dwelling A, however given the uncertainty around Person A's job due to COVID, You decided to sell instead.

On XX March 20XX You purchased a small unit, that had a large communal garden and common room, which you could all live in if person A lost their job (Dwelling B).

Settlement did not occur until XX July 20XX as You had agreed on a long settlement for the sale of Dwelling A.

You organised for contents insurance (the building insurance was covered within the body corporate fees), gas and electricity.

On XX July 20XX the gas was connected, although the electricity was not turned on until XX August 20XX.

On XX July 20XX you moved most of your furniture into Dwelling B and purchased some additional items.

Your mail was sent to both the Rental and Dwelling B.

Person A and your youngest child (Child A) spent much of their time at Dwelling B, which was close to Child A's school.

During this period, Person A was working from home and therefore would stay at Dwelling B while Child A was at school.

Person A and Child A would stay the night at Dwelling B whenever they needed to stay late in Suburb A, for example, for parties, sleepovers, and graduations. At other times they would return to the Rental.

Where possible, you tried to have the whole family, being You and your three children, stay at Dwelling B, so it would feel like it was home to all of you. This would generally be on a Friday or Saturday night.

You had very strong social connection with many of the neighbours, particularly Person A who was there during the day and able to drop in to see neighbours for a catch up.

As a result of COVID, there were few opportunities for the whole community to come together face-to-face. However, you were able to get together for a Christmas function at the end of 20XX that the whole family attended.

Earlier in 20XX, Person B was part of the gardening working group. The group met on-line during the lockdowns but were able to meet face-to-face after the lockdown.

In January 20XX Person B took on the role of Secretary for the Management Committee. There was a lot of work to do so the Committee were meeting almost fortnightly. Person B remained in this role until July 20XX as no one had volunteered to take on the role and Person B was conscious of the additional burden on the remaining volunteers.

You did not rent Dwelling B out.

You did not complete any renovations.

The rules of the Body Corporate state that 'No home unit or any part thereof can be leased' (resolved at AGM on XX December 19XX).

In February 20XX you were approached by the representative of an unsuccessful bidder on another one of the other units. They offered you a substantial amount to sell Dwelling B to them. Now that Person A's job was more secure, the offer meant You were able to recoup some of the losses you incurred from selling Dwelling A, and purchase a modest house near the children's' high school. You felt that this was a more secure outcome for your children so You accepted the offer.

On XX March 20XX the contract of sale was signed.

On XX July 20XX settlement was completed.

You made a capital gain on the sale of Dwelling B.

Person B has made the choice to treat Dwelling B as their main residence under section 118-170 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-170