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Edited version of your written advice
Authorisation Number: 5010057096165
Date of advice: 2 March 2019
Ruling
Subject: Main residence exemption
Question
Are you eligible for the main residence exemption under section 118-110 of the Income Tax Assessment Act 1997?
Answer
No
This ruling applies for the following period:
Year ending 30 June 2019
The scheme commences on:
1 July 2018
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The Company was incorporated in the 1990s.
Its share capital comprises ordinary shares held by you and a relative equally.
In May 1994 a contract for the purchase of the Property was entered into.
The Company is listed on the contract as the purchaser.
The Property has been held in the name of the Company since its acquisition.
The Property was purchased in the Company’s name as you had sought advice from his accountant.
Joseph has lived in the dwelling the entire period that the company owned the property.
You regarded it as your main residence and permanent home. You raised your family at the Property.
You assumed full responsibility for and incurred the following costs: the initial deposit; all mortgage repayments; construction costs of the dwelling; building permit fees; land tax: council rates; insurance and maintenance.
The Company did not charge you any rent in relation to their use of the Property.
The Company did not trade, did not have a bank account, has not lodged any tax returns or had a tax file number or an Australian Business Number.
You were recently organising your will and discovered the error.
It is proposed that the Company transfer the Property into your name.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 102-30
Income Tax Assessment Act 1997 Section 103-10
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 106-50
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 118-10
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
The property is considered to be owned by the person(s) registered on the title.
In this case the company is registered on the title and has the legal interest in the property.
A company is a separate legal entity distinct from its shareholders and officers. Shareholders hold shares in the company, but do not legally own the assets of the company as the shares do not give a proprietary right in the assets of the company.
You dispose of an asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.
You contend that the property although it was purchased in the name of a company, was always your residence and therefore, you should be entitled to the main residence exemption if the property is transferred to your name. In additional you have not provided any evidence that a trust relationship existed between you and the company.
We acknowledge your intention and circumstances surrounding your situation. However, the Commissioner can only consider what actually occurred rather than what was intended to occur.
In your case the company is listed as the transferee on the purchase of the dwelling.
The legislation applies to what in fact happened rather than what may have been in mind at some earlier or later point in time. In this case, the Company is the legal owner of the dwelling. As such the transfer of the dwelling to the occupant or sales to a third party will be a CGT event under the CGT provisions. The company is not eligible for main residence exemption.