Summers and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/0345)
Judgment date: 26 February 2008
Date published: 8 July 2008
Decision outcome: Partly Adverse

Summary of decision:
Outlines the Tax Office's response to this case which concerned the application of the CGT main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997 and whether certain expenses formed part of the cost base of a CGT asset.

Overview of facts:
The case dealt with the amount of a capital gain on the sale of land. The applicant purchased a vacant block of land in 1996 for $166,000. In June 2002, she entered into a contract with a builder to erect a house on the land, but the contract was terminated in September 2002, the parties agreeing that a 2-room shed erected by the builder on the land would stay. The applicant sold the property in June 2004 for $380,000, and later claimed that she had lived in the shed as her main residence for 4 months from January 2003. The main question in this case was whether, as a matter of fact, the shed was the applicant's main residence for a period of 4 months. If the answer was yes, the capital gain would be disregarded under section 118-110. There was then a subsidiary question about whether the CGT exemption, for the purposes of sections 118-45 and 118-185, was limited to the period from January 2003 to June 2004, or whether it extended from January 1999 to June 2004, through the operation of section 118-150. | On the main question, the Commissioner took the view, based on the indicia in TD 51 , that there was insufficient evidence to support the view that the shed was the applicant's main residence for 4 months from January 2003 (she did not cook meals at the shed; she showered at work; no electricity or gas was connected to the shed, though mains water and sewerage was; and her parents' house was her mailing address). On the subsidiary question, the Commissioner submitted that, even if the shed was found to be the applicant's main residence, she was not entitled to the four year extension of the exemption under s118-150 as she had not moved into the shed "as soon as practicable" after its completion. | There was a final issue about whether various expenses claimed by the applicant should be included in the cost base of the land. | Issues decided by the court or tribunal | The Tribunal accepted that the shed was the applicant's main residence for 4 months from January 2003, based on her oral evidence that she slept at the shed over this period, and a statutory declaration from her sister that she had visited the applicant at the property (paragraph 8). | On the subsidiary question, the Tribunal found that, given the applicant's minimal level of living at the shed from January 2003, it did not become her main residence as soon as practicable after it was constructed sometime before September 2002. Accordingly, the applicant was not entitled to an extension of the CGT exemption under section 118-150 for the four years prior to moving into the shed. Under sections 118-145 and 118-185, the applicant was entitled to partial exemption for the period from January 2003 until the sale of the land in June 2004 (paragraphs 9 and 10). | In relation to the cost base, the Tribunal was satisfied that the applicant had shown that there were further additions to the cost base which should be allowed.

Issues decided:
The Tribunal accepted that the shed was the applicant's main residence for 4 months from January 2003, based on her oral evidence that she slept at the shed over this period, and a statutory declaration from her sister that she had visited the applicant at the property (paragraph 8). On the subsidiary question, the Tribunal found that, given the applicant's minimal level of living at the shed from January 2003, it did not become her main residence as soon as practicable after it was constructed sometime before September 2002. Accordingly, the applicant was not entitled to an extension of the CGT exemption under section 118-150 for the four years prior to moving into the shed. Under sections 118-145 and 118-185, the applicant was entitled to partial exemption for the period from January 2003 until the sale of the land in June 2004 (paragraphs 9 and 10). In relation to the cost base, the Tribunal was satisfied that the applicant had shown that there were further additions to the cost base which should be allowed.

ATO view of decision:
The Commissioner did not appeal to the Federal Court from this decision. This was a case that depended on its own particular facts. | While the applicant's occupation of the shed lacked most of the normal indicia of a main residence, there was no obvious error in the Tribunal accepting that the shed was the applicant's main residence because she slept in it under minimal living conditions. | The decision reinforces the statement in TD 51 that the relevance and weight to be given to any factor in determining whether a dwelling is a taxpayer's main residence will depend upon the circumstances of each particular case.

Administrative treatment:
None, the case was decided on its facts. | Implications on current Public Rulings & Determinations | None

Legislative references: Income Tax Assessment Act 1997 110-25 118-110 118-145 118-150 118-185
Subject references: Income Tax Capital Gains Tax Main residence exemption Cost base