Private ruling: Capital gains tax - Main residence exemption
Published: April 2015
Ruling period: Year ending 30 June 2015. | Year ending 30 June 2016.
Date scheme commenced: 1 July 2014.

Ruling: Q1: Will the trustee for The X Family Trust be exempt from capital gains tax (CGT) on the sale of the property that is the main residence of the beneficiaries? | A1: No.

Relevant facts and circumstances: You (Mr and Mrs X) established The X Family Trust (the trust). You are both beneficiaries of the trust. The corporate trustee is ABC Pty Ltd (the corporate trustee). Mr X is the sole director and shareholder of ABC Pty Ltd. The trust and corporate trustee were set up in the 1990's to protect your assets after a previous business going into voluntary administration. In the 19XX financial year, ABC Pty Ltd as corporate trustee of the X Family Trust entered into an offer for a parcel of land (the property). The offer was accepted and settlement occurred on following month. The settlement statement and title deed for the property is listed in the name of the corporate trustee. The trust has never: • operated as a business • lodged tax returns • increased your income through the property • paid any distributions to beneficiaries. Construction commenced on the property shortly after settlement, and was completed in the 19YY financial year. You moved into the property straight away. The house has been your main residence for its entire duration and not used in connection with any business. You have paid all mortgage repayments, interest, maintenance and accounts for the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 115-10. | 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) of the ITAA 1997 and paragraph 118-110(1)(a) of the ITAA 1997 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) of the ITAA 1997, the main residence exemption does not apply.