Maxim Group

August 2007

Volume 2 Issue 7

 

Maxim Insight

Main Residence Exemption — Burden of Proof

In a recent decision, the Administrative Appeals Tribunal (AAT) held that a taxpayer failed to prove that a property they had constructed and used was their main residence and therefore eligible to concessional tax treatment on sale.

Broadly, any capital gain or loss from a dwelling is ignored for capital gains tax (CGT) purposes where it can be proven that the dwelling was the taxpayer’s main residence throughout the ownership period, and was not used for an income producing purpose. If the property was used for an income producing purpose during part of that period, only part of the capital gain or loss is ignored.

The taxpayer purchased a vacant block of land intending to build a house. After the house was built, the taxpayer sold the land. Three months prior to the settlement, the taxpayer moved into the house, claiming it as their residence. Upon selling the property, the taxpayer did not disclose the capital gain, relying on the main residence exemption. The Commissioner subsequently assessed the taxpayer on the net capital gain contending that the taxpayer failed to prove that the property constructed was actually their main residence.

The Commissioner indicated that while there is no set definition of ‘main residence’ some factors lend themselves to provide guidance with respect to the definition including:

· the length of time the taxpayer has lived at the residence;

· the connection of utility services to the residence;

· the address to which mail is directed; and

· the taxpayer’s address on the electoral role.

 

The AAT agreed with the Commissioner indicating that the taxpayer’s failed to prove that the property was their main residence.

Shareholder Loan Rules

The Tax Office recently released a Taxpayer Alert, which is intended to be an ‘early warning’ of high risk tax planning issues. This alert concerns the avoidance of the shareholder loan (deemed dividend) rules through corporate limited partnership arrangements.

A corporate limited partnership (CLP) is an association of persons carrying on business as partners or in receipt of ordinary or statutory income, where the liability of at least one partner is limited. For taxation purposes, a CLP is treated like a company.

Broadly, the shareholder loan rules apply to payments, advances or loans made by a private company to a shareholder or associate, unless certain exclusions apply.