1011579542641 | Legal database

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Edited version of private ruling

Authorisation Number: 1011579542641

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Ruling

Subject: Capital gains tax - Subdivision of land

Question 1: Will any capital gain or capital loss you make from the transfer of your interest in the property be disregarded?

Answer: No.

This ruling applies for the following period<s>:

2010-11 income year

The scheme commences on:

19 May 1987

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The other owner acquired a property with their former spouse before 1985. The property was the couple's main residence till their separation after 1985. After this and to the present time, the property has been used by the other owner and their children as their main residence.

Per an order of the Family Court of Australia dated after 1985, the spouse's half share of the property was transferred to you as trustee for the children. You, in an indenture, declared that you hold a moiety of one half of the property as trustee for the children.

The other owner now wishes to give the children their half share of the property, but wishes to stay in the same location. They thus intend to demolish the house, subdivide the property, retain one block for themself and build a new residence on it, sell the other block and pay the children out their share of the property.

For the purpose of this ruling, your interest in the property will be transferred to the other owner prior to the subdivision taking place.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10,

Income Tax Assessment Act 1997 Section 109-5,

Income Tax Assessment Act 1997 Section 118-110,

Income Tax Assessment Act 1997 Section 960-100 and

Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision

Summary

You will not be entitled to disregard any capital gain or capital loss you make from the transfer of your interest in the property.

Detailed reasoning

For income tax purposes (including capital gains tax), there are two entities that own interests in the property. The other owner owns a one-half interest in it and you own the other one-half interest in it. The income tax and capital gains tax provisions apply to each of you separately.

For any capital gain or capital loss you make from the transfer of your interest in the property to be disregarded, it must either be:

Acquired by you before 20 September 1985, or

Your main residence for the whole of your ownership period.

Neither of these exemptions will apply to the transfer of your interest in the property. The reasons for this are explained below.

Your acquisition date

Your acquisition date is used to work out whether or not you acquired your interest in the property before 20 September 1985.

The starting point is to use the date that the other owner's former spouse transferred their interest in the property to you. That gives you an acquisition date after 1985.

An earlier acquisition date is substituted if you acquired the property in circumstances where a roll-over applied. Then, the former owner's acquisition date is given to you for capital gains tax purposes.

A roll-over can apply where the transfer of an asset occurs due to a Family Court order, but it is only available if the asset is transferred between the parties to the marriage (from one spouse to the other).

This interest in the property was transferred to you in your capacity as trustee of a trust in favour of the children and not in your individual capacity. The marriage breakdown roll-over is not available to you as a recipient of marital property in your capacity as trustee of the trust as trustees are not considered to be acting as individuals.

This means that the transfer date after 1985 is your acquisition date.

Main residence

The main residence exemption applies to an individual in respect to the dwelling that they occupy as their main residence (if certain other conditions are met).

The main residence exemption is not available to you in your capacity as trustee of this trust because a trustee of a trust is not acting as an individual.

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