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Edited version of your private ruling
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Ruling
Subject: Capital gains tax
Questions and answers
Is CGT event A1 the most appropriate CGT event?
No.
Is CGT event B1 the most appropriate CGT event?
Yes.
If CGT event A1 is the most appropriate CGT event, can you rely on Taxation Determination TD 94/89 to wait until an actual change of ownership occurs before including the capital gain or capital loss in your income tax return?
Not applicable.
This ruling applies for the following periods:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
You are the owner of a property that you purchased post-20 September 1985.
You signed a contract to sell the property.
It was a condition precedent of the contract that the purchaser complete due diligence. Due diligence is due to be completed in the relevant year.
The purchase price will be paid by the purchaser over instalments paid over a number of years.
Legal title to the property does not pass to the purchaser for several years.
The proposed contract indicates that the purchaser has been given the right to use and enjoy the land.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 102-25.
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-15.
Reasons for decision
Section 102-25 of the ITAA 1997 sets out the ordering rules as to which CGT event happens in a particular situation or circumstance. If more than one CGT event potentially happens, then the CGT event that is "most specific" to the taxpayer's situation is used.
In your case, CGT events A1 and B1 may potentially happen. Therefore, we must consider both events to determine which is the most specific to your situation.
CGT event A1
CGT event A1 happens if a taxpayer disposes of a CGT asset. The time of the event is when the taxpayer enters into the contract for the disposal. (Section 104-10 of the ITAA 1997)
In your case, you intend to enter into a contract to sell the property to the purchaser.
Therefore, CGT event A1 will happen when you enter into that contract.
CGT event B1
CGT event B1 happens if a taxpayer enters into an agreement with another entity under which the right to the use and enjoyment of a CGT asset the taxpayer owns passes to the other entity, and title of the asset will or may pass to the other entity at the end of the agreement. The time of the event is when the other entity first obtains the use and enjoyment of the asset. (Section 104-15 of the ITAA 1997)
The right to the use and enjoyment of the asset
The proposed contract indicates that the purchaser has been given the right to use and enjoy the land.
Therefore, the right to use and enjoy the asset has been given to the purchaser prior to legal title passing in several years.
Title of the asset will or may pass
In your case, under the terms of the contract you intend to enter into with the purchaser, legal title of the property will pass to the purchaser in several years.
All conditions of CGT event B1 therefore apply to your situation.
Therefore, both CGT events A1 and B1 both apply to your situation however, CGT event A1 is a general CGT event, whereas CGT event B1 is more specific. This is because CGT event B1 only applies where the other entity has right to the use and enjoyment of the asset, whereas for CGT event A1 to happen, there only needs to be a disposal of a CGT asset.
As CGT event B1 is the most specific to your situation, this is the event which must be applied, in accordance with section 102-25 of the ITAA 1997.
Application of Taxation Determination TD 94/89
TD 94/89 only relates to CGT event A1. As discussed above, in your situation CGT event B1 is the most appropriate CGT event and therefore TD 94/89 does not apply.
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