Summers v Commissioner of Taxation
This outlines the Tax Office’s response to a case which concerned the application of the Capital Gains Tax (CGT) main residence exemption in the Income Tax Assessment Act and whether certain expenses formed part of the cost base of a CGT asset.
Decision Outcome
Partly Adverse
Brief Summary of Facts
The case dealt with the amount of a capital gain on the sale of land. The applicant purchased a vacant block of land in 1999 for $166,000. In June 2002, she entered into a contract with a builder to erect a house on the land, but the contract was terminated in September 2002, the parties agreeing that a 2-room shed erected by the builder on the land would stay.
The applicant sold the property in June 2004 for $380,000, and later claimed she had lived in the shed as her main residence for 4 months from January 2003.
The main question in this case was whether, as a matter of fact, the shed was the applicant’s main residence for a period of 4 months. If the answer was yes, the capital gain would be disregarded.
There was then a subsidiary question about whether the CGT exemption was limited to the period from January 2003 to June 2004, or whether it extended from January 1999 to June 2004.
On the main question, the Commissioner took the view there was insufficient evidence to support the view that the shed was the applicant’s main residence for 4 months from January 2003 (she did not cook meals at the shed; she showered at work; no electricity or gas was connected to the shed, though mains water and sewerage was; and her parents’ house was her mailing address).
On the subsidiary question, the Commissioner submitted that, even if the shed was found to be the applicant’s main residence, she was not entitled to the four year extension of the exemption as she had not moved into the shed "as soon as practicable" after its completion.
There was a final issue about whether various expenses claimed by the applicant should be included in the cost base of the land.
Issues decided by the Court or Tribunal
The Tribunal accepted the shed was the applicant’s main residence for 4 months from January 2003, based on her oral evidence that she slept at the shed over this period, and a statutory declaration from her sister that she had visited the applicant at the property.
On the subsidiary question, the Tribunal found that, given the applicant’s minimal level of living at the shed from January 2003, it did not become her main residence as soon as practicable after it was constructed sometime before September 2002.
Accordingly, the applicant was not entitled to an extension of the CGT exemption for the four years prior to moving into the shed. The applicant was entitled to partial exemption for the period from January 2003 until the sale of the land in June 2004.
In relation to the cost base, the Tribunal was satisfied the applicant had shown there were further additions to the cost base which should be allowed.
Tax Office view of Decision
The Commissioner did not appeal to the Federal Court from this decision.
This was a case that depended on its own particular facts.
While the applicant’s occupation of the shed lacked most of the normal indicia of a main residence, there was no obvious error in the Tribunal accepting the shed was the applicant’s main residence because she slept in it under minimal living conditions.
The decision reinforces the statement that the relevance and weight to be given to any factor in determining whether a dwelling is a taxpayer’s main residence will depend upon the circumstances of each particular case.
About The Author
Warren Kruger is an Australian Tax Specialist and Advisor.
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