1 Are the properties considered to be one dwelling as defined in section 118-115 of the Income Tax Assessment Act 1997 for the purpose of calculating your partial main residence exemption?
1 No. This ruling applies for the following period : Year ended 30 June 20XX The scheme commenced on: 1 July 20XX
You purchased a property a number of years ago and it was used to produce assessable income for several years. The property has its own title. You purchased a second property a couple of years after the first property was purchased and was your main residence for a number of years. The second property has its own title. The properties share an internal wall. Several years ago, you, and your partner together with your partners children, commenced living in the properties as your primary place of residence. Both properties ceased being income-producing from the time of occupancy and were used solely for private residential purposes. The original intent was for this to be a temporary living arrangement while you addressed financial challenges and searched for a suitable family home. Due to a combination of factors, including significant financial losses during the Global Financial Crisis and ongoing personal circumstances, you remained in residence at this property for an extended period. The properties were adjoining and located at the top level of the property complex.
Each unit is approximately the same size and designed as mirror images, sharing a common wall between the lounge rooms. To enable full use of the space as a single-family dwelling, you created an internal doorway by opening the shared brick wall. The brick wall was rendered hollow brick. The creation of the internal doorway allowed unobstructed movement between the two units. This structural modification effectively integrated the properties into a unified living space, which functioned as your sole and genuine main residence. The unit usage consisted of the following: The first property - served as the primary shared living space. Your partners children used the bedrooms for sleeping. The family used the bathroom, kitchen, and dining area of this unit for shared daily living. The second property - functioned as the adult living space. You and your partner used a bedroom for sleeping. The bathroom as an ensuite type situation and used another bedroom as a home office. The lounge area in the second property was the main living room shared by all of you.
The kitchen in the second property was used as storage and an adult's bar area with no kitchen appliances, as they had been removed. Your partner's child was young at the time the units became an adjoining main residence, they lived in the residence for several years and moved out to live with their partner. They slept in the first property but shared the living space with the rest of the family. Another of your partner's children was also young at the time units became an adjoining main residence. They lived in the residence for a longer period of time and moved out to live with friends in shared accommodation. They slept in the first property but shared the living space with the rest of the family. A few years ago, the internal doorway was removed by restoring the wall with hollow brick and covered with gyprock on both sides to formally separate the properties. This work was carried out by a plasterer. A few years ago, you and your partner moved out. Both properties were then rented through a property agent to unrelated individuals, as income producing rental properties.
A couple of years ago you and your partner moved back into the second property and resided in this unit until the sale of the property.
Income Tax Assessment Act 1997 section 118-115
Subsection 118-115(1) states that a dwelling includes: (a) a unit of accommodation that: (i) is a building or is contained in a building; and (ii) consists wholly or mainly of residential accommodation; and (b) a unit of accommodation that is a caravan, houseboat, or other mobile home; and (c) any land immediately under the unit of accommodation. The term 'dwelling' is not defined in the legislation and therefore takes on its ordinary meaning. The Macquarie Dictionary defines the term as 'a place of residence or abode; a house'. In Campbell v O'Sullivan [1947] SASR 195 at 201, May J stated that: ... "dwelling" ordinarily signifies a place of abode or residence, a tenement, habitation, or house, which premises a person or persons are using as a place for sleeping and usually for the provision of some meals. Taxation Determination 1999/69 Income tax: capital gains: can the term 'dwelling' as defined in section 118-115 of the Income tax assessment 1997 include more than one unit of accommodation?
(TD 1999/69) confirms that the term 'dwelling' as defined in section 118-115 can include more than one unit of accommodation where the units of accommodation are used together as one place of residence or abode. 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 circumstances of each case. Paragraph 4 of TD 1999/69 provides that factors relevant in considering whether units of accommodation are used together as one place of residence or abode include: a) whether the occupants sleep, at 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 occupant. Application to your circumstances
When considering if the properties can be considered as one 'dwelling', the presence or absence of any the specified factors in TD 1999/69 would not necessarily be determinative as the circumstances need to be viewed as a whole. Although the properties are side by side they will not be considered to be one dwelling. The properties are separate self-contained properties. Access was made between the properties by making a doorway between the properties and that doorway was filled in when the properties were to be sold. The Properties could be sold separately. As such, the properties are not considered to be one "dwelling" for the purpose of 118-115.