Private ruling: Capital gains tax main residence
Date of advice: 4 November 2020
Published: January 2021
Ruling period: 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Would the two adjoining residential units qualify as a dwelling for the purposes of section 118-115 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes, based on the factors outlined in Taxation Determination TD 1999/69 Income tax: capital gains: can the term 'dwelling' as defined in section 118-115 of the Income Tax Assessment Act 1997 include more than one unit of accommodation? we consider the facts and circumstances show the two adjourning residential units qualify as one dwelling for the purposes of section 118-115 of the ITAA 1997.

Relevant facts and circumstances: You purchased a property (Property A) in February 20XX, and you have occupied this property as your principal place of residence for the full period of ownership. Around March 20XX you purchased the property next door (Property B). At the time of purchase, the property was made available for rent and considered to be an investment property of yours. In April 20XX, you considered that the family was outgrowing your current living arrangements at Property A, so you organised to open up the wall between Property A and Property B so the two properties could be used together as your sole principal place of residence. The description of works undertaken included: • Renovation of the kitchen in Property B • Resurfacing floors • Painting • Demolition of a common internal wall between Property A and Property B and creation of a doorway and internal passage way • Demolition of a common external wall between Property A and Property B, opening the external yards The living and kitchen areas were primarily used by the family in Property B. Bedroom accommodation was altered so you and your child 1 utilised Property B and your child 2 utilised Property A with the other bedroom being a guest room. The other two bedrooms in Property B were utilised as study rooms for you and your child 1. The living area in Property B was used as a recreational area for your children's friends and computer area. In July 20XX you reassessed your family needs and reinstated the separate townhouse configuration by re-establishing the internal and external walls to the Properties. Property A became your principal place of residence and Property B became available to rent and considered to be an investment property again. Property A and Property B are listed on separate titles. In October 20XX you sold Property B.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 118-115