Private ruling: Capital gains tax - main residence exemption - two units of accommodation - one dwelling
Date of advice: 2 August 2017
Published: November 2017
Ruling period: Year ending 30 June 201C | Year ending 30 June 201D
Date scheme commenced: 1 July 201B

Ruling: Q1: Will the two properties qualify as a single dwelling for the purposes of section 118-115 of the Income Tax Assessment Act 1997 ? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-115 Summary | The two properties are two separate units of accommodation and do not constitute one dwelling. You are not entitled to treat property 2 as your main residence. The normal capital gains tax provisions will apply to the disposal of property 2. | Detailed reasoning | You may disregard a capital gain or loss that happens to a capital gains tax (CGT) asset (dwelling) where you are an individual, the dwelling was your main residence throughout the ownership period, and you did not acquire your interest in it as either a beneficiary or the trustee of a deceased estate (section 118-110 ITAA 1997). | Whether a dwelling is your main residence is a question of fact to be determined in light of the particular circumstances of each case. Except in limited circumstances, you are generally only allowed to treat one dwelling as your main residence at any time. | Dwelling | The term “dwelling” is defined in section 118-115 (1) of the ITAA 1997 as a unit of accommodation that is a building, or contained in a building and which consists wholly or mainly of residential accommodation. | Taxation Determination 1999/69 (TD 1999/69) considers whether more than one unit of accommodation can constitute a dwelling for the purposes of the main residence exemption. This is possible in circumstances where both units of accommodation are being used together as one place of residence or abode. | Whether two or more units of accommodation are used together in this way is a question of fact that depends on the particular circumstances of each case. | The factors we will consider in this determination include: | ● whether the occupants sleep, eat and live in them; | ● the distance between and the proximity of the units of accommodation; | ● whether the units are connected; | ● whether the units are capable of being sold separately; | ● the extent to which the daily activities of the occupants in the units are integrated; | ● how the units are shared by the occupants; and | ● how costs of the units are shared by the occupants | Application to your circumstances | In your case, you acquired property 2 and established it as your main residence and you began using the property for your domestic activities. | We consider that the houses are two separate units of accommodation for the following reasons: | ● The two houses were completely self-contained and separate. No attempt was made to physically join the two houses. | ● The properties were held on separate titles, and are capable of being sold independently of each other. The interests of the beneficiaries will be transferred so that each owns a dwelling separately. | Your use of property 1 was not integrated with your main residence to a sufficient degree to support a finding that the two houses were used together as one place of residence, and therefore do not constitute one dwelling for the purposes of section 118-115 ITAA 1997. | As the properties are not considered to be one dwelling you are not eligible to claim a main residence exemption for property 2.


Relevant facts: The deceased acquired, with their late spouse, ownership interests in property 1 and property 2. (The properties) | The deceased passed away in 201A. (The deceased) | Property 1 was the used as the main residence of the deceased. | Property 2 was used by immediate family members. | Property 2 was not used to produce income. | Meals were prepared and primarily eaten in property 1. | The deceased and their spouse paid for all of the expenses in relation to the properties during their lifetime. | The properties are located adjacently and share a common backyard boundary. Until recently there has not been a dividing fence between the properties. | The properties have separate titles. | The deceased has two children (A) and (B) who have occupied the properties since the deceased’s date of death | 'A’ and 'B’ are the beneficiaries and executors of the estate. | The titles to the properties have been transferred to the executors as tenants in common. | The beneficiaries will transfer their ownership interests so that 'A’ will be the sole owner of property 1 and 'B’ will be the sole owner of property 2. | You have provided a number of documents that are to be read with and form part of the description of the scheme for the purpose of this ruling.