Edited version of Private advice

Authorisation number: 1052328770325

Date of advice: 16 December 2024

ruling

Subject: CGT - exemption

Question 1

Will the applicant be considered to have 'disposed' of an 'ownership interest' in the retirement village unit pursuant to paragraph 292-102(1)(b) of Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

If the answer for the Question 1 is yes, when their ownership interest in the unit is disposed, will any capital gain (or loss) from the disposal be disregarded under Subdivision 118-B of ITAA 1997, as required by subparagraph 292-102(1)(d)(i) of the ITAA 1997?

Answer

Yes.

This advice applies for the following period:

Year ending 30 June 20YY

Relevant facts and circumstances

Your DOB is XX January 19XX.

You entered into a loan/lease agreement (agreement) to occupy a retirement village unit on X August 20XX with the owner.

The owner grants you, the resident, a lease of the dwelling. You also advanced a loan amount as set out in the agreement.

The dwelling consists of an apartment, car park and storage bay.

You are in the process of selling your interest in the retirement village unit.

You intend to utilise the downsizer contribution and advised you meet all other eligibility requirements for the Downsizer contribution.

Assumptions

The individual meets the basic conditions for the Downsizer contribution under section 292-102 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 292-102

Income Tax Assessment Act 1997 section 118-130

Income Tax Assessment Act 1997 section 104-10(2)

Other relevant documents

Taxation Ruling TR 2002/14: Income tax: taxation of retirement village operators

Law Companion Ruling LCR 2018/9:Housing affordability measures:contributing the proceeds of downsizing to Superannuation

Reasons for Decision

Question 1

Summary

You hold an ownership interest in the dwelling in the form of the rights granted under the agreement. These rights satisfy paragraph 118-130(1)(c).

Based on the information provided, the termination of your agreement with the owner of the retirement village unit is considered as the disposal of your ownership interest in a dwelling for the purposes of paragraph 209-102(1)(b) of the ITAA 1997.

Detailed reasoning

Eligibility for Downsizer contributions

Section 292-102(1) of the ITAA 1997 detail the criteria for a downsizer contribution:

(a)          the contribution is made to a complying superannuation plan in respect of you when you are aged 55 years or over; and

(b)          the contribution is an amount equal to all or part of the capital proceeds received from the disposal of an ownership interest (the old interest) in a dwelling; and

(c)          you or your spouse held the old interest just before the disposal; and

(d)          any capital gain or capital loss from the disposal of the old interest:

                (i)      for the case where you held it just before the disposal-is wholly or partially disregarded under Subdivision 118-B (or would have been if you had *acquired it on or after 20 September 1985); or

                (ii)      otherwise-would have been wholly or partially disregarded under Subdivision 118-B had you *acquired the old interest on or after 20 September 1985 and held it for a period before the disposal; and

(e)          the condition in subsection (2) is met for the disposal; and

(f)          the dwelling is located in Australia, and is not a caravan, houseboat or other mobile home; and

(g)          the contribution is made within 90 days, or such longer period as the Commissioner allows, after the time the change of ownership occurs as a result of the disposal; and

(h)          you choose, in accordance with subsection (8), to apply this section to the contribution; and

(i)          there is not already a contribution covered under this section, and made to a complying superannuation plan in respect of you, from an earlier choice you made in relation to the disposal of:

(i)            another ownership interest in the dwelling that was not a related spousal interest to the old interest; or

(ii)            an ownership interest in another dwelling.

Ownership interest

Paragraph 118-130(1)(c) of the ITAA 1997 explains that that you are considered to have an ownership interest for a flat or home unit if you have:

•                     A legal or equitable interest in a stratum unit in it; or

•                     A license or right to occupy it; or

•                     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 the right to occupy it.

Disposal

As per the agreement, your right to occupy the dwelling ceases upon your death, or if you require care that the retirement village is unable to provide, or if you breach the agreement, or at the end of 90 days after the date on which you give written notice to the owner of your intention to terminate the agreement.

Subsection 104-10(2) of the ITAA 1997 states that:

'You dispose of a *CGT asset if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law.'

Upon written request by you, the owner must pay an amount equal to that part of the refundable in-going contribution (loan).

Question 2

Summary

The main residence exemption applies and the capital proceeds to be received from the disposal of the ownership interest are disregarded and considered to be eligible for the downsizer contribution.

Detailed reasoning

Capital gains tax and main residence exemption

Paragraph 44 of the LCR 2018/9 states that to be eligible for the downsizer contribution, the property must be the individual's main residence for the purposes of the main residence exemption. The capital gain or loss incurred upon disposal of the property must be wholly or partially disregarded because the property has been treated as their main residence.

Paragraph 79 of Taxation Ruling TR 2002/14 further explains this. When a retirement village dwelling becomes a main residence of a resident under any arrangements discussed in this ruling, there will be no capital gains tax implications upon the subsequent disposal of the dwelling. This is because the resident has an 'ownership interest' in the residential unit for the purposes of section 118-130 of the ITAA 1997.