Private ruling: Capital gains tax - main residence - dwelling
Date of advice: 26 August 2015
Published: August 2015
Ruling period: Income year ending 30 June 2015.
Date scheme commenced: 1 July 2014.

Ruling: Q1: Will the properties qualify as a single dwelling for the purposes of section 118-115 of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: The deceased purchased a property after 20 September 1985 (Dwelling A) in which the deceased and their children (Child A and Child B) resided. Dwelling A consisted of sufficient bedrooms for the deceased and the children they had residing with them at the time the property was acquired. The deceased acquired the property next door to Dwelling A (Dwelling B) a number of years later. The properties were very close together with no dividing fence between the properties. The back yards of the properties had no fence and were used as one yard by the family. The combined size of the properties is less than two hectares. All expenses for both properties were paid by the deceased. It had been deceased's intention to install a hallway between the properties to join them and make them into one dwelling. Another child of the deceased (Child C) lived with a relative and they would stay with the deceased on weekends and school holidays. During those periods Child C would sleep in a bedroom in Dwelling B. Child C moved in with the deceased a number of years after Dwelling B had been purchased. Child C slept in a bedroom in Dwelling B. Child C ate meals in Dwelling A, and did not do any cooking or laundry, with everything being done by the deceased in Dwelling A. Child C continued to reside with the deceased for a number of years until she/he moved out. Child C returned to live with the deceased a number of years later and continued to reside with the deceased for a number of years until they again moved away. During the periods that Dwelling B was vacant, the deceased had used it for storage as they had a lot of equipment and for visitors when they came to stay. The deceased experienced a health issue a number of months after Child C had moved away. As a result, the deceased required nursing and the deceased and Child A and Child B moved in with a relative. The deceased passed away a number of years later. After the deceased passed away, the properties remained vacant. The properties were advertised for sale together and were sold together in the one transaction with settlement occurring a number of years after the deceased had passed away.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-115

Reasons for decision: Detailed Reasoning - A "dwelling" can include more than one unit of accommodation if the units are used together as a place of residence: As a general rule, the main residence exemption only applies to one unit of accommodation that is used as a person's main residence. However, in circumstances where there are multiple units of accommodation, they may in fact qualify as part of the main residence. This is generally when the two units of accommodation are so integrated, that they are not considered to be separate from the main residence. Taxation Determination 1999/69: Income tax: capital gains: can the term 'dwelling' as defined in section 118-115 of the Income Tax Assessment Act 1997 include more than one unit of accommodation? (TD 1999/69) outlines our view of when you may treat two units of accommodation as one main residence. TD 1999/69 considers that whether two or more units of accommodation are used together as one place of residence or abode for the purposes of the definition of 'dwelling' is a question of fact that depends on the particular circumstances of each case. Factors relevant in considering whether units of accommodation are used together as one place of residence or abode include: a) whether the occupants sleep, eat and live in them; b) the distance between and the proximity of the units of accommodation; c) whether the units are connected; d) whether the units are capable of being sold separately; e) the extent to which the daily activities of the occupants in the units are integrated; f) how the units are shared by the occupants; and g) how costs of the units are shared by the occupants. Application to your situation The deceased purchased Property A, in which they had resided with their children and had then purchased Property B a number of years later. The issue in this case is whether we can accept that the properties can both be viewed as a single dwelling. As outlined above, TD 1999/69 outlines our view of when you may treat two units of accommodation as one dwelling. We have taken the following facts into consideration when applying TD 1999/69 to this situation: • Property A consisted of sufficient bedrooms for the deceased and the children that lived with them when the property was purchased. When Child C moved in with the family, due to the limitation on the number of bedrooms in Property A, Child C had slept in a bedroom in Property B, • Child C's activities were intimately related to the family and their activities in relation to Property A • Child C used Property A as their main residence for more than half of the deceased's ownership period, • based on the facts presented, it appears that a bedroom in the dwelling (located at Property B) was potentially kept for Child C, if or when they needed the bedroom, • the houses on the properties are not physically connected, but are next to each other, • the family used the backyards together, with no fence dividing the properties, • the properties could be sold separately. However while the properties were on separate titles, they were advertised together and were sold together in the same transaction, • the deceased maintained and paid the costs of both properties as part of their main residence; and • neither dwelling was rented out during the deceased's ownership period, or after they had passed away and the family had used the properties together. Based on the information provided, there has been no activity undertaken during the deceased's entire ownership of the properties, such as the renting out of either property, which denigrates that the properties had not been used as one residence. While the properties are capable of being sold separately, they were not, and the deceased's family living arrangements and activities are closely integrated so as to satisfy the requirements for them both to be viewed as a dwelling. Therefore, both the properties are viewed to be the deceased's dwelling for the purposes of section 118-115 of the ITAA 1997.