Edited version of private advice

Authorisation Number: 1052083034391

Date of advice: 03 March 2023

Ruling

Subject: CGT - main residence exemption

Question

Can you claim the main residence capital gain tax exemption under section 118-110 of the Income Tax Assessment Act 1997 on the sale of the property?

Answer

Yes.

Question 2

What are the CGT consequences if, any, arise for the trustees from the sale of the property?

Answer

N/A

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

'The property' is approximately 2 hectares - 20,000 sqm in size.

The property was held by you and your late husband as the main residence. You and your late husband acquired the property on XX XX 19XX.

The children of you and your husband were in dispute over the care arrangements and living situation of their father as he required a high level of care. One of the issues was whether to place the father in care facility in the last years before his passing.

Your husband remained in the family home until his passing, with the aid of significant professional assistance, so he would be in a familiar environment.

On XX X 20XX you both severed the joint tenancy and held the property as tenants in common in equal shares.

On XX X 20XX, your husband passed away and you received his half share of the property under the will. Probate was granted on XX X 20XX.

X XX 20XX the Judge of the Supreme Court made orders appointing the trustees for the sale as trustees for the sale of the property. Although the trustees for the sale have been in that office since the orders, the title of the property has not been transferred to them.

As at XX XX 20XX you and your late husband were advised by local agents that the property had a value of $XX.

The property was to be sold via contract for the sale of the land dated XX XX 20XX to unrelated purchasers for $XX. You were the vendor for the sale. The trustees were not involved in the sale process but were consulted and had no objection to the sale process.

Until XX XX 20XX when the property was settled, the property had been your main residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-85

Income Tax Assessment Act 1997 section 106-50

Income Tax Assessment Act 1997 section 118-110

Reasons for decision

Capital gains tax provisions

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. The dwelling is a CGT asset.

Under section 104-10 of the ITAA 1997 CGT event A1 happens if you dispose of a CGT asset.

The sale of the property is a CGT event.

Under section 118-110 of the ITAA 1997 you can disregard a capital gain or capital loss from a CGT event that happens to a CGT asset that is a dwelling or your ownership interest in it if all of the following conditions apply:

•         you are an individual

•         the property is less than two hectares.

•         the dwelling was your main residence throughout your ownership period

•         the ownership interest did not pass to you through a trust or a deceased estate

In most cases the full exemption will apply where an individual or individuals own a dwelling and occupy it as a main residence.

The property is considered to be owned by the person(s) registered on the title.

The legal owner as per the legal title is yourself. You were a co-owner when the property was initially purchased, and you inherited the remaining 50% of the property under the will of your late husband as a tenant in common.

Trustee and the Court consent orders

The consent orders made on 3 December 2019 by the Court caused a change of ownership in circumstances where two CGT events need to be considered:

•         CGT event A1 about changes of ownership, and

•         CGT event E1 about creating a trust over an asset.

Subsection 104-10(1) of the ITAA 1997 provides that CGT event A1 happens if you dispose of a CGT asset.

ATO ID 2009/129 Income Tax: Capital gains tax: land vested in a statutory trustee for sale, CGT event A1 or CGT event E1, states that the making of the court order effects a disposal of the property from the joint owners to the trustees for sale by operation of the law. Therefore, CGT event A1 happens for each joint owner.

ATO ID 2009/129 also explains that CGT event E1 under section 104-55 of the ITAA 1997 does not occur when a court order effects a disposal of the property from the co-owners to the trustees. This is because section 104-55 of the ITAA 1997 states that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement (but not by the making of a court order).

However, in this instance the property's legal title was never transferred to the trustees intended under the Court consent orders. Furthermore, while being informed and in agreement with the sale, the trustees were never involved in the actual disposal of the property.

Consequently, the main residence exemption available under section 118-110 of the ITAA 1997, would apply to you with regards the disposal of the property in this instance.