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This edited version has been archived due to the length of time since original publication.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 your private ruling

Authorisation Number: 1012149244686

Subject: Capital gains tax - real property - transfer of title - disposal

Question:

Are you subject to capital gains tax (CGT) as a result of a change in title to property held in joint names?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

Your sibling and their spouse (party A) owned a unit.

Your sibling separated from their spouse and your parent on your behalf paid half of the market value of the unit to your sibling.

The property was subsequently held by you and party A as tenants in common.

Party A has continued to live in the unit and has contributed all the maintenance and upkeep of the property.

The property needs considerable upgrading and party A obtained a loan to finance this venture.

You have recently retired from employment and can not contribute towards the ongoing costs of the loan.

You have transferred your interest in the property to party A for no consideration in the 2011 income year.

Party A has paid all costs associated with the transfer, including stamp duty and conveyancing costs.

You have not received any money during your period of ownership of the property and have not been required by party A to contribute any money towards the upkeep of the property.

You will make a capital gain as a result of the transfer of your ownership interest in the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 104-10(1)

Income Tax Assessment Act 1997 Subsection 104-10(2)

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Subsection 116-10(2)

Reasons for decision

A capital gain or a capital loss may arise if a CGT event happens to a capital gains tax asset. A CGT asset is any kind of property, or a legal or equitable right that is not property.

The disposal of a property causes a CGT event A1 to occur. You dispose of an asset when a change of ownership occurs from you to another entity.

In your case, when the title was transferred by you, CGT event A1 happened and as such you will be liable for any CGT liabilities that follow.

The market value substitution rule takes effect if you did not deal at arm's length with another entity in connection with the event, this also applies in your case as you have not received any capital proceeds from the CGT event. The market value substitution rule, broadly, is when the capital proceeds are replaced with the market value of the asset.

In your situation, you will be taken to have received the market value for your interest in the property on the date of transfer and the other party will be taken to have paid the market value to you.

Whilst we acknowledge and appreciate your particular circumstances, the Commissioner does not have discretion to disregard any capital gain that you are liable for as a result of the transfer.

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