Edited version of private ruling

Authorisation Number: 1011579743504

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

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 one of the blocks of land to the other owner be disregarded?

Answer: No.

Question 2: Will any capital gain or you make from the sale of your interest in the other block of land 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 private ruling, the current owners will subdivide the property into two.

You will then transfer your interest in one of the subdivided blocks of land to the other owner. You will sell your interest in the other block of land.

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 112-25

Income Tax Assessment Act 1997 Section 118-110

Income Tax Assessment Act 1997 Section 960-100

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Question 1

Summary

You will not be entitled to disregard any capital gain or capital loss you make from the transfer of your interest in one of the blocks of land to the other owner.

Detailed reasoning

For any capital gain or capital loss you make from the transfer of your interest in one of the blocks of land to the other owner 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 to the other owner. 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 subdivision does not result in any change of ownership to the property or to either block of land. It merely splits the property into two blocks that each continue to be jointly owned by the other owner and you.

Therefore, the starting point to work out your acquisition date 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 acquisition date of the former owner of this interest in the property 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.

Question 2

Summary

You will not be entitled to disregard any capital gain or capital loss you make from the sale of your interest in the other block of land.

Detailed reasoning

For any capital gain or capital loss you make from the sale of your interest in the other block of land 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 sale of your interest in the other block of land. The reasons for this are the same as given above.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).