Edited version of private advice

Authorisation Number: 1052188375822

Date of advice: 3 November 2023

Ruling

Subject: CGT - main residence exemption

Question

Will you be entitled to a full main residence exemption to disregard any capital gain arising as a result of surrendering your rights in the proposed Lot 2?

Answer

Yes.

Your capital gains tax (CGT) asset were the rights granted to you by your parents as outlined in their Statement of Wishes under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

The rights are an ownership interest in the newly constructed house and land related to the proposed Lot X because they provided you with the right to occupy the House under section 118-130 of the ITAA 1997.

You will receive a payment from Person A and capital gains tax (CGT) event C2 will occur when you surrender your rights under section 104-25 of the ITAA 1997, which is eligible for the CGT main residence exemption.

Any capital gain or loss you make from the surrender of the rights is fully disregarded under the main residence exemption provisions contained in Division 118 of the ITAA 1997 because:

•         You are an individual

•         You did not acquire these rights as beneficiary of the estate of a deceased person

•         The construction of the House on the proposed Lot X was completed within four years of you having acquired your rights

•         The House has been your main residence since shortly after construction was completed; and

•         The land area of the proposed Lot 2 is less than 2 hectares.

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Your parents, Person A and Person B, purchased a property (the Property) as joint tenants after 20 September 1985.

The Property had two dwellings located on it. The remaining area of the Property located on one side at the front of the Property was vacant land (the proposed Lot X).

You commenced living in one of the dwellings located on the Property several years after it was purchased.

Your parents made a Statutory Declaration several years ago in which they both declared that they were the owners of the Property who had given you and your spouse permission to construct a dwelling on the Property.

You parents also signed a Statement of Wishes after they made the Statutory Declaration, which is summarised as follows:

•         Your parents are the owners of the Property

•         With their permission, you would build a residence on that portion of the Property referred to as Lot X

•         Upon their deaths it is their intent by their Wills to leave all of their assets to you and your sibling, Person C, equally, but acknowledge that by allowing you to build on Lot X there is a discrepancy. Accordingly, it was their express wish and desire that you and Person C subdivide the Property to allow Person C to receive an equivalent area to Lot X from the balance of the Property for their use and benefit, with you retaining Lot X for your own use and benefit with the costs of the subdivision to be borne by the estate of the surviving parent

•         Once you had received Lot X and Person C has received a lot of equivalent area from the Property the balance of the Property to be retained or sold for the benefit of both you and Person C

•         It was not intended that the Statement of Wishes have effect as a testamentary disposition but is only a statement of your parents' wishes in relation to the Property.

The construction of the new house (the House) on the Property was completed within a couple of years of the Statutory Declaration and Statement of Wishes.

You moved into the newly constructed house on the proposed Lot X (the House) shortly after its completion and you have continued to live there until the present time.

Person B passed away and Person A became the sole owner of the Property as the surviving joint tenant.

Person A wishes to sell the proposed Lot X. To enable them to do that, Person A will pay you the market value for the House and the land area of the Property attributable to the proposed Lot X for you to surrender your rights, which they will pay to you during the ruling period.

Neither you nor your spouse owned any other property/properties during your ownership period of your rights in relation to the Property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-25

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 118-130

Income Tax Assessment Act 1997 Paragraph 118-130(1)(a)

Income Tax Assessment Act 1997 Section 118-150

Income Tax Assessment Act 1997 Division 118