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Edited version of private ruling
Authorisation Number: 1011564938500
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Ruling
Subject: Capital gains tax (CGT)
1. Are you entitled to a full exemption for CGT purposes upon the sale of the property?
No.
2. Are you entitled to a partial exemption for CGT purposes upon the sale of the property?
Yes.
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You obtained an ownership interest in a property prior to 20 September 1985. As of 20 September 1985, there were two other joint tenants. Each of you therefore had an ownership interest of 33.33% in the property.
One of the other joint tenants died, leaving you and the other individual with an ownership interest in the property of 50% each.
You did not live in the property, however the other individual lived in it and used it as their main residence until their death in the income year ended 30 June 2010.
The other joint tenant did not pay you any rent.
When the other joint tenant died in the income year ended 30 June 2010, you became the sole owner of the property.
A few months after the other joint tenant's death, you sold the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 118-110.
Income Tax Assessment Act 1997 Section 118-195.
Income Tax Assessment Act 1997 Section 118-197.
Reasons for decision
Section 102-20 of the ITAA 1997 states that you make a capital gain or capital loss if and only if a CGT event happens. CGT events are the different types of transactions or happenings which may result in a capital gain or a capital loss.
The disposal of a CGT asset is the most common CGT event and is referred to as CGT event A1 (section 104-10 of the ITAA 1997). A taxpayer disposes of a CGT asset if a change of ownership occurs from the taxpayer to another entity.
Subsection 104-10(3) of the ITAA 1997 describes when the event happens. The time of the event is either when the taxpayer enters into a contract for the 'disposal', or if there is no contract - when the change of ownership occurs.
Assets acquired prior to 20 September 1985
Subsection 104-10(5) of the ITAA 1997 provides that a capital gain or capital loss you make is disregarded if you acquired the asset before 20 September 1985.
In your case, you acquired an ownership interest in the property prior to 20 September 1985. As at 20 September 1985, you had a 33.33% interest in the property.
Therefore, the capital gain or loss you made in relation to your 33.33% interest in the property when it was sold in the income year ending 30 June 2010 will be disregarded.
Main residence exemption
Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To qualify for full exemption, the dwelling must have been your main residence for the whole period you owned it, the ownership period, and must not have been used to produce assessable income.
Subdivision 118-B of the ITAA 1997 considers the main residence and how it relates to dwellings acquired from deceased estates. Section 118-197 of the ITAA 1997 specifically states that Subdivision 118-B applies to surviving joint tenants as if the ownership interest of another individual in a dwelling had passed to that person as a beneficiary in a deceased estate if the surviving joint tenant and the other individual owned ownership interests in the dwelling as joint tenants and the other individual dies.
In your case, at the time of the other joint tenant's death, they held a 50% interest in the property. As the remaining joint tenant, this interest in the property was transferred to you.
According to section 118-195 of the ITAA 1997, any capital gain or capital loss you make on your mother's ownership interest in the property will be disregarded if you meet one of the following requirements:
1. your ownership interest ends within two years of the deceased's death, or
2. the dwelling was, from the deceased's death until your ownership interest ends, the main residence of one or more of:
a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased), or
b) an individual who had a right to occupy the dwelling under the deceased's Will, or
c) if the CGT event was brought about by the individual to whom the ownership interest passed as a beneficiary - that individual.
In addition, for any portion of the interest in the property acquired after 20 September 1985, the dwelling must be the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income.
In your case, you meet the above requirements. Your ownership interest ended within two years of the other joint tenant's death, as you sold it a few months after their death, and the property was the other joint tenant's main residence just before their death, and was not being used to produce assessable income.
Therefore, any capital gain or capital loss you make in relation to the other joint tenant's 50% interest in the property will be disregarded.
Summary
You are entitled to a partial exemption from any capital gain or capital loss you made as a result of the sale of your property. The total exemption you are entitled to is 83.33% (that is, the sum of 33.33% for the pre-CGT interest and 50% for the other joint tenant's interest).
You are not entitled to an exemption for the remaining 16.67% as this relates to the interest you did not hold until after 20 September 1985 and which you did not dispose of within 2 years of the death of the former joint tenant.
In order to calculate the capital gain or capital loss you made from the sale of property, follow the instructions in the Guide to capital gains tax 2009-10 (NAT 4151), which is available from our website www.ato.gov.au .
After you have calculated the total capital gain or capital loss, you can then take into account the exemption of 83.33%.
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