1011587777396 | Legal database

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Edited version of private ruling

Authorisation Number: 1011587777396

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Ruling

Subject: Capital gains tax (CGT)

Can you disregard any capital gain or capital loss you made when you sold the property previously owned by your late parent?

No.

This ruling applies for the following period:

Year ended 30 June 2008

The scheme commenced on:

1 July 2007

Relevant facts and circumstances

The property in question was purchased prior to 20 September 1985 by your parents.

One of your parents died in prior to 20 September 1985 and your other parent became the sole owner of the property.

On a date after 20 September 1985, you paid an amount to a relative.

You and your family all agreed that this payment would negate any future inheritance claim of that relative in your parent's home. Your parent executed a new Will to show this arrangement.

After receiving legal advice, the title deed of the property was then transferred to you, so that if your parent were to die suddenly, your relative would not have an inheritance claim on the property.

You and your family did not intend that absolute and beneficial ownership of the property passed to you at this time. You were all of the belief that ownership would only pass through inheritance upon the death of your parent.

Your parent's Will stated that you were to inherit the property. Your parent continued to enjoy, maintain and occupy the property in an ownership right as if nothing had changed.

You did not contribute financially to the property or earn any income from the property.

The property remained your parent's main residence until his/her death over 10 years after the arrangement was made.

The only written documentation you have in regards to this arrangement is the will of your parent which shows his/her intention to bequeath all real property to you.

You sold the property shortly after your parent's death.

You did not use the property for income producing purposes.

The total land size of the property is less than two hectares.

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 118-195.

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (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.

Section 118-195 of the ITAA 1997 considers the situation where a main residence is inherited. According to this section, any capital gain or capital loss you make from an inherited property will be disregarded if you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate (paragraph 118-195(1)(a)), and the conditions set out in the table in paragraph 118-195(1)(b) are also met.

You do not meet the requirements of this section as you did not inherit the property in question, and you did not own the property as the trustee of a deceased estate.

In the case of trusts involving real property, the law in every state of Australia provides that such trusts must be documented in writing.

In your case, the title of the property was passed to you by your parent while he/she was alive when the family arrangement was made. You did not inherit the property. Although your parent continued to live in the property he/she had no ownership interest in it. The arrangement you had was a verbal family agreement. There was no trust arrangement in writing.

The fact that you have provided reasons as to why your parent gave you the property rather than bequeathing it to you in his/her will is not sufficient to show that for CGT purposes you did not acquire an ownership interest in 1988 or that you inherited the property upon his/her death.

Therefore, you have not met the requirements of section 118-195 of the ITAA 1997 and you are not entitled to disregard the capital gain or capital loss you made when you sold the property.

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