Edited version of private advice

Authorisation Number: 1052101025889

Date of advice: 24 March 2023

Ruling

Subject: CGT - main residence exemption

Question

Is any capital gain or capital loss you make due to the sale of property disregarded?

Answer

No.

This private ruling applies for the following period:

year ending 30 June 20XX

The scheme commenced

1 July 2022

Relevant facts

The Trust acquired a property.

The trust acquired the property with a contract date of xx xx 20xx.

Settlement occurred a short time later.

The property has been used to produce assessable income since settlement.

The primary beneficiaries of the trust will demolish the existing structure and rebuild a new dwelling.

The primary beneficiaries will reside in the dwelling for a number of years.

The primary beneficiaries will instruct the trustee of the trust to sell the newly constructed dwelling during the period covered by this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-130

Reasons for decision

Summary

You cannot use the main residence exemption to disregard the capital gain or loss upon sale of your property.

Detailed reasoning

Main residence exemption

Generally, you can ignore a capital gain or loss you make on the disposal of a dwelling that was your main residence if:

•         you are an individual, and

•         the dwelling was your main residence throughout your ownership period, and

•         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.

You have an ownership interest in a dwelling or land if:

a)       for land - you have a legal or equitable interest in it or a right to occupy it, or

b)       for a dwelling that is not a flat or home unit - you have a legal or equitable interest in the land on which it is erected, or a licence or right to occupy it, or

c)       for a flat or home unit - you have:

i)           a legal or equitable interest in a stratum unit in it; or

ii)          a licence or right to occupy it; or

iii)         a share in a company that owns a legal or equitable interest in the land on which the flat or home unit is erected and that gives you a right to occupy it

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

Ordinarily a trust cannot apply the main residence exemption as the entity making the gain must be an individual.

Application to your circumstances

The relevant capital gains tax (CGT) event occurs to the property which is owned by the trust. The CGT event A1 disposal event will happen to the legal owner which is the trust.

As the entity disposing of the trust is not an individual, the trust cannot use the main residence exemption to disregard any capital gains or losses from the disposal of the property.