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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private ruling

Authorisation Number: 1011646794842

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 fac sheet has more information.

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Ruling

Subject: Capital gains tax

Question 1

Do you acquire a property from the date the purchase contract is dated and exchanged for Capital Gains Tax (CGT) purposes?

Answer

Yes.

Question 2

If you hold a CGT asset for longer than 12 months will you be entitled to the discount capital gain under section 115-25 of the Income Tax Assessment Act 1997 (ITAA of 1997)?

Answer

Yes.

Question 3

Is the date of the CGT event for disposal of a property the date of the sale contract?

Answer

Yes.

This ruling applies for the following period

Year ending 2011

The scheme commenced on

1 July 2010

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.

All legislative references referred to herein are from the ITAA 1997, unless otherwise stated.

You exchanged contracts for the purchase of vacant land in NSW and settlement occurred a couple of months later.

You intend to build a house on the land and then sell it. You have advised that you are not in the business of property development.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 115-25

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

All legislative references referred to herein are from the ITAA 1997, unless otherwise stated.

CGT is the tax a taxpayer pays on any capital gain they make. It is not a separate tax, merely a component of their income tax. Taxpayers are taxed on their net capital gain at their marginal tax rate.

The taxpayers net capital gain is:

The taxpayer makes a capital gain or capital loss if a CGT event happens. For most CGT events, the capital gain is the difference between the capital proceeds and the cost base of the CGT asset.

CGT event A1 is the most common CGT event, which includes disposal of land. The time of the CGT A1 event is when you enter into the contract for the disposal; or if there is no contract, when the change of ownership occurs.

Under Division 115 of the ITAA 1997, you can use the discount method to calculate your capital gain from the disposal of your land if:

In your case, you purchased land on XXX, being the date of the contract and the date of disposal of the land will be the date of the sale contract. You will be entitled to the CGT discount if you hold the property for more than 12 months.

Please note this ruling does not considered whether the sale of the property will attract capital gains tax or if the profit made will form part of your assessable income.

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