Edited version of private advice

Authorisation Number: 1052275025693

Date of advice: 18 July 2024

Ruling

Subject: CGT - main residence exemption

Question

Are you entitled to claim the CGT main residence exemption for the sale of the property?

Answer

No. The Trustee is not entitled to claim the CGT main residence exemption on disposal of the Property. The main residence exemption is only available to individuals in respect of their ownership interest in a dwelling. It is not available where the ownership interest is held by a trust.

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The spouse has lived at the Property for XX years as the main residence.

The spouse is elderly and needs to vacate the Property and move into care. The Property must be sold to pay for the care home fees.

The ownership of the Property is held by a Settlement Trust (the Trust). The Settlement Deed is dated XX XXX 19XX. You have provided a copy of the Settlement Deed.

The Trust was set up by the parent, for their child. The trust was established for the sole benefit of the child, who is the late spouse of XXX (the spouse).

The terms of Trust provided the child with income only for their life, and an independent trustee managing the capital. The child was not entitled to receive any capital. However, the capital could be used to make capital decisions including buying the family home.

The Trust provided that after the death of the child, upon trust as to both capital and income of the trust fund for such one or more of the children or remoter issue of the child.

The family home was purchased by the Trust in 19XX and then sold when the Property was bought in 19XX.

The child died in 20XX. According to both the Trust and the will, the spouse is entitled to the whole of the income of the Trust during their lifetime. The child's will bequeathed the residue of the estate to the spouse.

The family want to sell the Property and return the money back to the trust. As the spouse is not happy in the care facility, the family would like to purchase a suitable home.

The Trust will continue to exist to benefit XXX until their death.

The Trust can only be dissolved once the last beneficiary dies.

The Trust has had changes to the Trustee over the years, with the children of the child now the Trustees.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 118-110

Ruling Reasons for decision

Main residence exemption

A CGT event A1 happens under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.

Section 118-110 of the ITAA 1997 provides a CGT exemption for any capital gain or loss you make from a CGT event that happens to a dwelling or your ownership interest in it if:

•         you are an individual; and

•         the dwelling was your main residence throughout your ownership period; and

•         the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person.

In most cases the full exemption will apply where an individual or individuals own a dwelling and occupy it as a main residence.

Application to your circumstances

In your case, the Trust owns the Property and therefore the main residence exemption conditions have not been met.

The terms of Trust provided the child with income only. The child was not entitled to receive any capital. The capital could be used to purchase a family home for the child. However, the Property is held in the Trust, and it is the Property of the Trust. Neither the child nor the spouse has ever had an ownership interest in the Property.

The spouse's interest is in the life estate - the entitlement to the whole of income of the Trust during their lifetime. The spouse has no ownership interest in the Property, even though they have lived in the Property for many years and regarded the Property as their main residence.

Consequently, as the Property was always owned by the Trust, and not by the individuals, the Trust does not meet the requirements of section 118-110 of the ITAA 1997, the trustee will not be entitled to claim the CGT main residence exemption on the sale of the Property.

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