Private ruling: CGT and the main residence exemption
Published: October 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Trustee for the Trust be exempt from capital gains tax on the sale of the trust property (the Property) where the property is used as the main residence of a beneficiary? | A1: No.

Relevant facts and circumstances: Company A is the corporate trustee of the Trust, which was set up for asset protection purposes. The Trust is a discretionary trust. Individual B is the sole controller and public officer of the company as well as a major beneficiary of the Trust. The property is the Trust's main asset, and was purchased, in part, through a bank mortgage with Individual B as a guarantor on the loan. The property was initially used by the Trust as a rental property. After a relationship breakdown, the property was attributed to Individual B under a binding financial agreement. Individual B moved into the property in the 2010-11 financial year and it has been his/her main residence since then.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 118-110 | Income Tax Assessment Act 1997 - Subsection 995-1(1)

Reasons for decision: Summary: Subsection 118-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss made by an individual from a CGT event that happens in relation to a dwelling is disregarded if the dwelling was their main residence throughout their ownership period. An individual is defined to be a natural person under subsection 995-1(1) and paragraph 118-110(1)(a) refers to an individual acting in their personal capacity only and does not extend to an individual in the capacity of a trustee. In this case, the property is held by the corporate trustee in its capacity as trustee of the trust. As any capital gain or loss made from the sale of the property will not be made by an individual, as defined under subsection 995-1(1), the main residence exemption does not apply.