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Edited version of private ruling
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Ruling
Subject: Capital gains tax
Question and answer:
Is capital gains tax (CGT) payable on the sale of your property?
Answer: Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You and your partner purchased a block of land and built a house on it.
You and your partner each had a 50% share in the house.
You and your partner went through a relationship break down.
You sold the house.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 108-7.
Income Tax Assessment Act 1997 Section 110-25.
Reasons for decision
The CGT provisions are contained in Part 3-1 and 3-3 of the ITAA 1997. CGT is the tax you pay on certain capital gains you make. You make a capital gain or a capital loss when a 'CGT event' happens (section 102-20 of the ITAA 1997). The most common CGT event A1 happens when you dispose of the asset to another party (for example disposal of a dwelling) (section 104-10 of the ITAA 1997).
Section 108-7 of the ITAA 1997 provides that individuals who hold a CGT asset as joint tenants are treated as if they were tenants in common who each owned a separate CGT asset comprising an equal interest in the asset.
Calculating a capital gain
For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset for example, if you sell an asset for more than you paid for it, the difference is your capital gain.
In working out your capital gain, you determine the cost base of the CGT asset involved in the CGT event.
Section 110-25 of the ITAA 1997 sets out the elements that form part of the cost base. The cost base is made up of five elements:
1. The first element is made up of money paid or required to be paid to acquire the CGT asset.
2. The second element will include incidental costs of acquiring the asset, or costs in relation to the CGT event. Examples are agent's commission, advertising to find a seller or buyer, fees paid to an accountant.
3. The third element consists of non-capital costs incurred in connection with your ownership of a CGT asset. Examples are interest, rates, repairs and insurance premiums. These costs cannot be indexed or used to work out a capital loss. Do not include expenditure for which you have claimed, or could be allowed, a deduction for income tax purposes in any year.
4. The fourth element includes capital expenditure you incur to increase the value of the CGT asset if the expenditure is reflected in the state or nature of the asset at the time of the CGT event.
5. This includes capital expenditure you incur to preserve or defend your title or rights to the asset.
You need to work out the amount for each element, and then add them together to work out the cost base of your CGT asset.
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