Issue
If a dwelling acquired by a company on or after 20 September 1985 is transferred to a person following their marriage breakdown and roll-over was available to the company under Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997), is the person entitled to a main residence exemption for the period that the dwelling was owned by the company?
Decision
No. Although the person is taken for the purposes of the main residence exemption in Subdivision 118-B of the ITAA 1997 to have owned the dwelling when it was owned by the company, subsection 118-180(2) of the ITAA 1997 specifies that the dwelling cannot be treated as the person's main residence during that period.
Facts
A company acquired a property (consisting of land and a dwelling) after 19 September 1985. The taxpayer and their spouse (who together owned all of the shares in the company) lived in the dwelling.
The taxpayer's marriage broke down. The taxpayer continued to live in the dwelling.
As a result of a court order under the Family Law Act 1975 , the company transferred the property to the taxpayer. The taxpayer continued to live in the dwelling until they sold the property.
The taxpayer made a capital gain from the sale of the property.
Reasons for Decision
Subsection 118-180(1) of the ITAA 1997 treats a dwelling acquired by a taxpayer from a company or trustee as a result of marriage breakdown, as if it were owned by the taxpayer during the period when it was actually owned by the company or trustee if: • the dwelling was acquired by the company or trustee on or after 20 September 1985; and • marriage breakdown roll-over was available to the company or trustee under Subdivision 126-A of the ITAA 1997.
However, in these circumstances a dwelling cannot be treated as the taxpayer's main residence during the period when it was owned by the company or trustee, even if the taxpayer lived in the property when it was owned by the company or trustee (subsection 118-180(2) of the ITAA 1997).
As a result, the dwelling can only be treated as the taxpayer's main residence for the period from when the taxpayer actually owned the property.
This means that, on a subsequent disposal by the taxpayer, the dwelling will only qualify for a partial exemption in accordance with section 118-185 of the ITAA 1997, as the dwelling is not taken to be the taxpayer's main residence throughout the taxpayer's ownership period.