Private ruling: capital gains tax and main residence exemption
Published: August 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the property exempt from capital gains tax (CGT), under the main residence exemption, if it was continually maintained as a main residence for over 40 years, even though the title was transferred to a company in 2001 for asset protection purposes? | A1:  | Q2: Is the property exempt from CGT as a pre-CGT asset if purchased in the 1970's and continually maintained as a main residence, even though the title was transferred to a company in 2001 for asset protection purposes? | A2: 

Relevant facts and circumstances: Company A holds the title to a property. The property was originally purchased in the 1970's by Mr and Mrs A as their family home and remains so to date. The title to the property was transferred to Company A in 2001 for asset protection purposes. Company A is wholly owned by Trust A of which Mr and Mrs A are beneficiaries as well as being the directors of the corporate trustee. Company A has been actively trading over the last few years. At present the assets of Company A of the property and trading stock. Mr and Mrs A want the property to be disposed of and wish to use the proceeds from the sale to move to a retirement village.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 109-5 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 118-110

Reasons for decision: Summary: Subsection 109-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that in general, you acquire a CGT asset when you become its owner. In this case, the time when you acquire the asset is when you become its owner. Section 104-10 of the ITAA 1997 explains that CGT event A1 occurs when your ownership in a CGT asset (eg. property) is transferred to another entity. The time of the event is when you enter into a contract for the disposal, or, if there is no contract, the time of disposal is taken to be the time when the change in ownership occurs. Subsection 104-10(5) of the ITAA 1997 states that a capital gain or capital loss you make is disregarded if you acquired the asset before 20 September 1985. Subsection 118-110(1) of the ITAA 1997 provides that a capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if: · you are an individual; and · the dwelling was your main residence throughout your ownership period; and · 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 your case, Mr and Mrs A acquired the property in the 1970's. They later disposed of their ownership interest in the property when legal title was transferred to Company A in 2001. At this time, they had disposed of a pre-CGT asset and therefore any capital gain made on the disposal of the property would have been disregarded. From that time, Company A held the ownership interest in the property, which it acquired in 2001. Therefore, when the property is subsequently disposed of, Company A will be the entity disposing of the property, not Mr and Mrs A. As Company A is a company and not an individual, any capital gain that is made on the disposal of the property can not be disregarded by virtue of the main residence exemption under subsection 118-110(1) of the ITAA 1997. Further, as Company A acquired the property post 20 September 1985, any capital gain that is made on the disposal of the property can not be disregarded under subsection 104-10(5) of the ITAA 1997.