Private ruling: Capital gains tax - main residence - two dwellings
Published: November 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will you be liable for capital gains tax (CGT) when a CGT event occurs to your interest in a dwelling which was not your main residence? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-7 | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-120

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. CGT is the tax you pay when a CGT event happens to a CGT asset, such as land. The most common CGT event is CGT event A1, which occurs when you dispose of an asset, or interest in an asset to another party. | Detailed Reasoning - Tenants in common: Individuals who own a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common. Tenancy in common is a type of co-ownership where two or more persons own interests in the same piece of property. The tenants in common hold undivided shares, possessing the property in common and without exclusive possession of any part of it. Taxation Ruling IT 2485 states that where a dwelling is not the sole or principal residence of all joint owners, the exemption provided on disposal (main residence exemption) is available only to the joint owner or each joint owner who occupied the dwelling as his or her sole or principal residence in respect of his or her share in the dwelling. The main residence exemption also applies to the surrounding total land area on which the dwelling stands on up to two hectares which is used primarily for private and domestic purposes in association with the dwelling. | Detailed Reasoning - How it applies to your situation: In your situation, you and your spouse are joint tenants occupying dwelling B as your main residence you will benefit from the main residence exemption in respect of your interests in this dwelling. Any other joint tenants not occupying that dwelling as their main residence will be subject to CGT on their interest in the dwelling. As dwelling B is you and your spouse's main residence and you both have not resided in dwelling A as a main residence any capital gain or capital loss made when a CGT event occurs such as a disposal, your interest in dwelling A is not disregarded.

You and your spouse currently own a property as joint tenants in a half share as tenants in common with your child and their spouse. | The property is one title with two dwellings. | You and your spouse reside in one dwelling (dwelling B) as your main residence. | Your child and their spouse reside in the other dwelling (dwelling A) as their main residence. | Your child and their spouse will purchase another dwelling. | Your child and their spouse will rent out dwelling A. | The property will be disposed of.