Issue
Can the taxpayer, an individual who held a share in a company that gave the shareholder the right to live in a specific home unit, disregard the capital gain made from the sale of the share under subsection 118-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The taxpayer can disregard the capital gain made from the sale of the share under subsection 118-110(1) of the ITAA 1997.
Facts
The company was the legal owner of a block of land on which home units were constructed. The taxpayer and other family members each owned one share in the company. They owned all of the shares issued by this company. Each share provided the shareholder with the exclusive right to live in a specific home unit owned by the company.
The taxpayer lived in the home unit which their share entitled them to occupy from the date the share was acquired until the date of its disposal. The home unit was the taxpayer's main residence for this period. The taxpayer did not use all or any part of the home unit to derive income. The taxpayer sold the share which provided the right to live in the home unit to another person, and realised a capital gain upon disposal.
Reasons for Decision
An 'ownership interest' in land or a dwelling is defined in subsection 118-130(1) of the ITAA 1997. The definition includes, at subparagraph 118-130(1)(c)(iii): a share in a company that owns a legal or equitable interest in the land on which the home unit is erected and that gives you a right to occupy it.
The taxpayer had an ownership interest in land or a dwelling because the share that they owned in the company gave them a right to occupy the home unit.
CGT event A1, section 104-10 of the ITAA 1997, happened when the taxpayer sold the share. The taxpayer made a capital gain as the capital proceeds from the disposal were more than the cost base of the share (subsection 104-10(4) of the ITAA 1997).
As the taxpayer had occupied the home unit solely as their main residence, and did not use all or any part of the home unit to produce income, the capital gain made from the CGT event A1 is disregarded under subsection 118-110(1) of the ITAA 1997. [Note: If the home units are disposed of by the company any capital gain or capital loss would not be disregarded under Subdivision 118-B of the ITAA 1997.]