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Edited version of private ruling

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Ruling

Subject: Capital gains tax- use and enjoyment before title passes

Question 1

Will the transfer of your dwelling from your name to your relative and your relative's spouse, be a capital gains tax event B1?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You purchased your dwelling sometime after 20 September 1985.

The dwelling has been tenanted for a number of years.

The tenants have been asked to vacate so that your relative and their family can move into it.

You have entered a Deed of Arrangement that states that the dwelling will be transferred to your relative and your relative's spouse within X years or upon repayment of the entire bank loan, whichever comes first.

Your relative and your relative's spouse will pay the equivalent of the loan repayment due each fortnight into your bank account. They may pay more than the payment due each fortnight in order to reduce the interest payable. They will also pay all rates, levies and upkeep of the property from the date of occupation.

They will pay you an amount of money when the dwelling is transferred to them, less the amount repaid to the bank account.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10 and

Income Tax Assessment Act 1997 section 104-15.

Reasons for decision

Detailed reasoning

You can make a capital gain or capital loss if, and only if, a capital gains event (CGT) happens. The gain or loss is made at the time of the event. If more than one CGT event happens, the one that is applied is the one that is most specific to your situation.

The most common event occurs if you dispose of a CGT asset, such as your home. This is called CGT event A1. The time of the event is when you enter into the contact for the disposal, or if there is no contract, when the change of ownership occurs.

CGT event B1 happens when you enter into an agreement with another entity under which:

The time of the event is when the other entity first obtains use and enjoyment of the asset.

These are the two capital gains tax events that may apply to your situation. As you entered into an agreement with your relative and your relative's spouse, to allow use and enjoyment of your property, with the title to pass to them at a specific time, being the repayment of the bank loan or within X years, whichever comes first, CGT event B1 is the most specific CGT event to your situation.

Therefore, the transfer of your dwelling from your name to your relative and your relative's spouse, will not be CGT event A1, because CGT event B1 has already occurred.

Note: The time of the CGT event B1 was when your relative and your relative's spouse and their relative first obtained use and enjoyment of your asset, being when they first moved into the dwelling.

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