Private ruling: Capital gains tax
Published: September 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to apply the main residence exemption to disregard all or part of the capital gain? | A1: No.

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: • the application for private ruling, and • the information provided with the application. You purchased a property for your disabled relative to use exclusively as their main residence. No other person has ever lived in the property. Your relative is legally disabled and receives full disability benefits. Due to their disability and to ensure nobody could deceive your relative and take away their residence you obtained the assistance of your other relative who consented to also have their name on the title deed. You supplied all of the funds to purchase the property. You have continued to pay for all ongoing expenses to maintain and keep the property. Originally there were family members that lived in the area, however that is no longer the situation. You have sold the property in order to purchase property which is where you relative's family members reside. You have provided a statutory declaration which makes the following declarations: • You have paid for all costs in relation to the property (including maintenance costs and costs to prepare the property to be sold) suing your own funds, and have treated the property as a property which is wholly owned by yourself. • After you bought the property, you granted your relative a right to occupy the property and pursuant to that grant of right he has solely occupied it as his sole principal place of residence. • You caused the property to be sold. You have taken back the whole of all proceeds arising from the sale of the property as your own. In particular, you cause and instructed your advisers including your conveyance, your real estate agent and your accountant to deposit all proceeds arising from the sale of the property into the trust account of your lawyers who would hold the moneys on behalf of yourself.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 120-20

Reasons for decision: Summary: Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset. CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). | Detailed Reasoning - Beneficial ownership: A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset. A legal owner is the individual who has their name on the legal documents associated with the capital gains tax (CGT) asset, an example would be the title deed for a property. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner of a CGT asset that is liable for capital gains tax upon sale of the assets. In some cases, an entity may hold a legal ownership interest in property for another individual in trust. | Detailed Reasoning - Main residence exemption: Generally, you ignore a capital gain or capital loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence. To get the full exemption from CGT: • the dwelling must have been your home for the whole period you owned it • you must not have used the dwelling to produce assessable income, and • any land on which the dwelling is situated must be two hectares or less. | Detailed Reasoning - Partial exemption: You may be eligible for a partial main residence exemption if: • the dwelling was your main residence for only part of the period you owned it • your partner or dependents have separate homes • you have used part of the property (either the dwelling or the land) to produce assessable income, or • the land is more than 2 hectares. | Detailed Reasoning - Application to your circumstances: In this case, you purchased a property for your relative to live in. You are one of the legal owners of the property as your name appears on the title deed. In the statutory declaration provided you stated that you have treated the property as a property which is wholly owned by yourself. Further, that the proceeds from the sale of the property have been deposited in the trust account of your lawyers who are holding the monies on your behalf. We consider that you are a legal and beneficial owner of the property. Therefore, CGT event A1 happened for you when the property was sold. The main residence exemption can only apply in circumstances where the dwelling was used as your home. In this case, you did not live in the property at any time during the ownership period. Therefore, you are not entitled to a full or partial main residence exemption.