Private ruling: Absolute entitlement and main residence exemption
Date of advice: 3 April 2017
Published: August 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you absolutely entitled to the property as beneficiary of the bare trust? | A1: Yes. | Q2: As beneficiary of the bare trust, are you entitled to apply the main residence exemption provisions to the disposal of the property? | A2: Yes.

Relevant facts and circumstances: You purchased a main residence in the name of your private company. You are the sole director and shareholder of the company. The company has never carried out any property related activity. You have personally paid all expenses relating to the property. You have a bare trust arrangement in place. The property has at all times been used as your main residence. The property is less than 2 hectares and has never been used to produce assessable income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 106-50 , | Income Tax Assessment Act 1997 Subsection 118-110(1) and | 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 you make from a capital gains tax (CGT) event in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if: (a) you are an individual; and (b) the dwelling was your main residence throughout your ownership period; and (c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. In most cases the full exemption will apply where an individual or individuals own a dwelling and occupy it as their main place of residence. The term individual does not apply to companies, trusts or other entities. An individual is defined in subsection 995-1(1) of the ITAA 1997 to mean a natural person. However, where a beneficiary of a trust is absolutely entitled as against the trustee to the dwelling, an exemption may be available to the beneficiary if the dwelling is the principal place of residence of the beneficiary. This is because the CGT provisions apply to an act done by the trustee as if it were an act done by the beneficiary where the beneficiary is absolutely entitled to a CGT asset against the trustee (section 106-50 of the ITAA 1997). The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. In your case the company holds the property in the capacity of bare trustee on behalf of yourself as sole beneficiary. You are able to direct how the property will be dealt with. Therefore, you are absolutely entitled to the property in question and as such, any act done by the trustee in relation to the property will be treated as being done by you. Further, this means that when the property is disposed of, the main residence exemption provisions will apply to you as if you were the legal owner of the property.