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Edited version of private ruling
Authorisation Number: 1011717890431
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Ruling
Subject: Capital gains tax
Question and answer:
Are you liable for Capital Gains tax on the transfer of your half share in a property?
Yes.
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts:
You and a sibling purchased a house.
This property was held in equal shares tenants in common.
This property was rented out.
You transferred your half share to your sibling in exchange for a share in another property.
There was no formal agreement for the transfer.
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 110-25
Income Tax Assessment Act 1997 section 116-30
Reasons for decision
Capital gains tax
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer makes a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985.
A taxpayer makes a capital gain if their capital proceeds from the sale of a CGT asset are greater than the cost base for the purchase of that asset, for example, if a taxpayer received more for an asset than they paid for it.
A taxpayer makes a capital loss if their reduced cost base for the purchase of that asset is greater than the capital proceeds resulting from the sale of that asset.
Capital gains tax is not a separate tax, it forms part of a taxpayer's assessable income and is taxed at each taxpayer's marginal tax rate.
The transfer of ownership in a property from joint to individual ownership results in a CGT event occurring. This is CGT event A1.
You have transferred your 50% share in the property to your sibling giving them 100% ownership in the property.
You make a capital gain if the capital proceeds are more than the cost base (section 104-10 (4) of the ITAA 1997)
Capital proceeds are the consideration you received upon the disposal of your half interest in the Property.
Capital proceeds are the amount of money or the value of any property a taxpayer received or is entitled to receive as a result of a CGT event happening to a CGT asset that a taxpayer owns.
Cost base
The cost base of a CGT asset is generally the cost of the asset when a taxpayer bought it. However, it also includes certain other costs associated with acquiring, holding and disposing of the asset.
In order to work out how much a taxpayer's capital gain or capital loss is, a taxpayer must first establish the cost base or reduced cost base of a taxpayer's ownership interest in the property.
Section 110-25 of the ITAA 1997 states that the cost base of a CGT asset is made up of five elements.
Money or property given for the asset.
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.
A taxpayer does not include costs if a taxpayer:
· has claimed a tax deduction for them in any year, or
· omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired.
Non-capital costs of ownership of the CGT asset, which include:
· interest on money borrowed to acquire the asset; and costs of repairing, maintaining, or insuring it; and
· interest on money a taxpayer borrowed to refinance the money a taxpayer borrowed to acquire the property; and
· interest on the money a taxpayer borrowed to finance the capital expenditure a taxpayer incurred to increase the assets value.
A taxpayer does not include such costs if they acquired the asset before 21 August 1991. Nor are they included if they:
· have claimed a tax deduction for them in any year, or
· omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired.
Capital expenditure that a taxpayer incurred to increase the assets value.
Capital expenditure a taxpayer incurred to establish, preserve or defend a title to the asset, or a right over the asset.
As you are only disposing of a half interest, only half of the acquisition cost and incidental cost of acquisition form part of the cost base.
Accordingly you are required to pay capital gains tax on the transfer of your 50% share of the property.
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