Private ruling: Capital gains tax
Published: February 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a partial main residence exemption in respect of property B in relation to the period of time it was used together with property A as one dwelling? | A1: Yes.

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. Property A was acquired during the 1992-93 financial year. Property A has been your main residence for the entire ownership period. Property B was acquired during the 2001-02 financial year. Property B was rented from purchase until the 2008-09 financial year. During the 2008-09 financial year, both property A and property B were renovated and connected by building an additional connecting room. All rooms in the now connected residence were used by both you and your spouse and your children as your main residence. There was only one phone number for both property A and B. The Office of State Revenue exempted both properties from land tax under the Dual Principal Place of Residence exemption. Water was billed for each house separately as there were two water meters. There was one alarm system for both properties. The properties remained on separate titles but the local municipal council rated the properties as one rateable property from the time they formed part of the one main residence. Property B was used as a living space. It contained living space, bathroom, two bedrooms and a study. There was no kitchen. Property B was sold in the 2014-15 financial year after pulling down the connecting room. Property A continues to be your main residence.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-115. | Income Tax Assessment Act 1997 Section 118-185 .

Reasons for decision: Summary: Both properties were your main residence from the time the connecting room was built until you had it removed. Therefore, you are entitled to a partial main residence exemption for the period the properties were connected as your main residence. | Detailed Reasoning - Detailed reasoning: Taxation Determination TD 1999/69 considers the situation where more than one unit of accommodation can constitute a dwelling for the purposes of the main residence exemption. TD 1999/69 states that whether two or more units of accommodation are used together as one place of residence, for the purposes of the term dwelling as defined in section 118-115 of the ITAA 1997, is a question of fact that depends on the particular circumstances of each case. Factors that are relevant in considering each case include: (a) whether the occupants sleep, eat and live in them (b) the distance between and the proximity of the units of accommodation (c) whether the units are connected (d) whether the units are capable of being sold separately (e) the extent to which the daily activities of the occupants in the units are integrated (f) how the units are shared by the occupants, and (g) how costs of the units are shared by the occupants. In your case, you purchased property A as your main residence in the 1992-93 financial year. You purchased the house next door in the 2001-02 financial year. Property B was used to produce assessable income until the 2008-09 financial year. At this point, you built a connecting room between the two properties and used them both as one residence. Property B was used as a living space while property A was where meals were prepared and shared. Property B could be (and in fact was) sold separately to property A. There was a room that connected both properties. There was: • only one phone number for both properties • both properties were exempted from land tax under the Dual Principal Place of Residence exemption • There was only one alarm system for both properties • Water was billed separately as there were two water meters • Although the properties remained on separate titles, the local municipal council rated the properties as one rateable property from the time they formed the one main residence. Based on the facts provided, it is considered that you occupied both properties as one dwelling with your family from the 2008-09 financial year until the 2014-15 financial year. You acquired property B and immediately rented it out. It was rented out for about 7 years. You then connected it to your main residence and integrated it with property A so that the properties formed one dwelling. You and your family occupied both properties as one dwelling for approximately six years. The sale of property B triggered capital gains tax (CGT) event A1. Therefore, the CGT implications of that sale must be considered. | Detailed Reasoning - Partial Main residence exemption: Section 118-185 of the ITAA 1997 states that if a dwelling is your main residence for only part of your ownership period, you will only get a partial exemption for any loss or gain arising from a CGT event that occurs in relation to that dwelling. The capital loss or gain is calculated using the following formula: Capital gain or loss x Non main residence days* Total days of your ownership period (* non main residence days are the number of days where a dwelling was not occupied as your main residence). Both properties were your main residence from the time the connecting room was built until you had it removed. Therefore, you are entitled to a partial main residence exemption worked out using the formula above.