Private ruling: Capital gains tax (CGT) main residence exemption
Published: March 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2000

Ruling: Q1: Can you disregard a capital gain or loss from a dwelling that you did not permanently reside in, but which was occupied as the main residence of your dependent children? | A1: No.

Relevant facts and circumstances: You and your spouse purchased a residential property, property A, as joint tenants in 20XX. Property A was sold in 20YY for a capital gain. You never permanently resided in Property A. However, your two children lived there as a dependants from 20XX to 20ZZ, and non-dependants from 20ZZ to 20YY. You used the property on an irregular basis. Your children were born after 1975. During the ownership period of the property, you resided in another dwelling that was owned by a discretionary trust controlled by you and your spouse. You, and your spouse, purchased a second property in 20ZZ which was vacant until it became your main residence in 20AA. The first property was never used for business purposes nor derived any rent. You wish to elect the first property as your main residence for the period 20XX to 20AA.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 118-B | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-175

Reasons for decision: Summary: Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) provides an exemption for a capital gain or capital loss from certain CGT events that happen in relation to a taxpayer's main residence. The general rule is contained in section 118-110 of the ITAA 1997 which provides that a capital gain or loss that an individual makes from the disposal of a dwelling is disregarded if the dwelling was the individual's main residence throughout the period it was owned. This rule may be extended or limited by other provisions in Subdivision 118-B of the ITAA 1997. Whether a dwelling is an individual's main residence depends on the facts of each case. The factors to be taken into account include the length of time the individual lives in the dwelling, the place of residence of the individual's family and whether the individual has moved his personal belongings into the dwelling. In this situation, the dwelling was not your main residence as you had never moved into the dwelling after you acquired your ownership interest in it. The dwelling was the main residence of your dependent children. In certain cases, a dwelling may be treated as an individual's main residence. For example, section 118-175 of the ITAA 1997 provides that if a dwelling is your main residence and another dwelling is the main residence of a child of yours who is under 18 and is dependent on you for economic support, you must choose one of them as the main residence of both of you. In this case, the children were your dependents but were not under the age of 18 at any time whilst they resided in the dwelling. Therefore, the conditions under section 118-175 of the ITAA 1997 have not been satisfied. You are unable to elect the first property as your main residence for the period 1 March 20XX to 14 March 20AA.