Edited version of private advice

Authorisation Number: 1052097621199

Date of advice: 21 March 2023

Ruling

Subject: CGT - main residence

Question 1

Will you be eligible for the full main residence exemption under Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) on your 20% ownership interest in the dwelling and associated 2 hectares of land (the property)?

Answer

Yes.

You will be eligible for the full main residence exemption under Subdivision 118-B of the ITAA 1997 on your 20% interest in the dwelling and associated 2 hectares of land. Any capital gain or capital loss will be fully disregarded for CGT purposes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Person A is the current owner of the property.

The property consists of a house, the land upon which the house is situated, and adjacent land. The property covers a land area of XX hectares.

You intend to purchase a 20% interest in the property from Person A. After the proposed purchase you and Person A will be tenants in common, with Person A having an 80% interest in the property and you having a 20% interest in the property.

The purchase price will be 20% of the market value of the property.

Person A intends to use the sale proceeds to repay personal debts.

You and Person A are not each other's spouse or dependant, nor are you related parties.

Person A proposes to move out of the property after your purchase of a 20% interest in the property. They intend to continue to treat the property as their main residence after they move out.

You propose to move into the property and treat the property as your main residence. You have no other property that which you will be claiming as your main residence during your ownership period of the property.

You will pay rent to Person A based on 80% of the market value rent of the property for the use and enjoyment of Person A's 80% interest in the property.

You anticipate selling your interest in the property a few years after you acquire your 20% interest in the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-115

Income Tax Assessment Act 1997 section 118-120

Reasons for decision

Under section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) a capital gain or 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 a trustee of, the estate of a deceased person.

Section 118-120 of the ITAA 1997 extends the main residence exemption available under section 118-110 to the adjacent land of a dwelling up to two hectares, including the land on which the dwelling is built, provided that the adjacent land was used primarily for private or domestic purposes in association with the dwelling.

The property consists of a house, which meets the definition of a dwelling in accordance with section 118-115 of the ITAA 1997.

You will hold your interest in the property as tenants in common with Person A. As tenants in common you each own a separate CGT asset in relation to your ownership interest in the property. Your eligibility to the main residence exemption is assessed in respect to your 20% ownership interest in the property. This approach is supported by Taxation Ruling IT 2485 Income Tax: Capital Gains: Jointly owned property: Not the principal residence of all joint owners whichconsidered the application of the exclusion in the former section 160ZZQ of the Income Tax Assessment Act 1936 to a situation where a dwelling was jointly owned. In relation to the disposal of a dwelling that is jointly ownedby a taxpayer with another person to whom the taxpayer is not legally married, IT 2485 concluded that the exemption was available to each joint owner who occupied the dwelling as their principal residence in respect of his or her share in the dwelling.

In your case, you intend to live in the property as your main residence throughout your entire ownership period. You will therefore be eligible for the full main residence exemption for the dwelling. As the property covers an area of XX hectares, the main residence exemption will only extend to the dwelling and adjacent land up to two hectares in area.