Main residence exemption

Can a taxpayer disregard the capital gain made on the disposal of a dwelling occupied by the taxpayer's children, but not the taxpayer, under the main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer cannot disregard the capital gain made on the disposal of a dwelling occupied by the taxpayer's children, but not the taxpayer under the main residence exemption in Subdivision 118-B of the ITAA 1997.

The taxpayer purchased a property that was occupied only by the taxpayer's children. The taxpayer did not live in the property at any stage of the ownership period but stayed at accommodation provided by the taxpayer's employer.

The taxpayer considered the property to be the family home. The property was never used to produce assessable income. The taxpayer did not own another property.

The taxpayer subsequently sold the property and realised a capital gain.

Subdivision 118-B of the ITAA 1997 allows a taxpayer to disregard a capital gain from a capital gains tax (CGT) event that happens to a CGT asset used as the main residence throughout the taxpayer's ownership period.

The courts have considered the meaning of 'residence'. In Koitaki Para Rubber Estates Ltd v. Federal Commissioner of Taxation (1941) 64 CLR 241; (1941) 6 ATD 82; (1941) 2 ATR 167 the High Court stated: 'The place of residence of an individual is determined, not by the situation of some business or property he is carrying on or owns, but by reference to where he eats and sleeps and has his settled or usual abode. If he maintains a home or homes he resides in the locality or localities where it or they are situate, but he may also reside where he habitually lives even if this is in hotels or on a yacht or some other place of abode.'

The Commissioner of Taxation has issued Taxation Determination TD 51 setting out the factors, though not exhaustive, to be considered when determining whether a dwelling is a taxpayer's sole or principal residence.

Although TD 51 relates to the former CGT provisions under the Income Tax Assessment Act 1936 (ITAA 1936), it is still relevant in interpreting the meaning of 'main residence' because section 1-3 of the ITAA 1997 states that the: • ITAA 1997 contains provisions of the ITAA 1936 in a rewritten form; and • differences in style between ITAA 1997 and the ITAA 1936 are not to affect meaning.

Paragraph 3 of TD 51 states that the mere intention to occupy a dwelling as a sole or principal residence, but without actually doing so, is insufficient to obtain the exemption.

The property in which the taxpayer's children resided is not the taxpayer's main residence because the taxpayer: • habitually resided in the accommodation provided by the employer and not in the other property; and • only intended to reside in the property in which the taxpayer's adult children resided.

The property is therefore not considered to be the 'main residence' of the taxpayer. Accordingly, the taxpayer cannot claim the main residence exemption from CGT under Subdivision 118-B of the ITAA 1997.