1012388041109 | Legal database

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Edited version of your private ruling

Authorisation Number: 1012388041109

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Subject: Capital gains tax - ownership interest - dwelling - disposal

Question:

Are you assessable on the capital gain made on the disposal of the property acquired with your parents?

Answer:

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts:

You and your parents purchased a property after 20 September 1985 as tenants in common.

You and your parents' obtained a mortgage to purchase the house.

The property was rented from settlement for a number of years, until your parent's moved into the house.

You contributed amounts to cover your share of the mortgage, for a number of years. After this period your parent's made partial loan repayments and you reduced your contributions.

Your parents' paid you a nominal rental fee per month during their period of occupancy and ceased to do so after a number of years.

Your parents assumed all remaining mortgage payments from this time and repaid you an amount.

You claimed tax deductions whilst your parents were paying you rent.

You and your parent's did not have a trust deed or a formal family arrangement.

Your name remained on the title to the property, until the property was sold.

You have made a capital gain as a result of the sale.

You have supplied a number of documents which form part of and should be read in conjunction with the private binding ruling.

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 118-110

Income Tax Assessment Act 1997 section 118-130

Reasons for decision:

Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening to a CGT asset. The most common event, CGT event A1, happens if you dispose of a CGT asset to someone else e.g. the disposal of a dwelling.

Main residence exemption

Generally you can ignore a capital gain or capital loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence. To be eligible for the main residence exemption, either fully or partially, you must have resided in the dwelling.

Legal ownership

When considering the disposal of your interest in a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the property. In absence to the contrary, property is considered to be owned by person(s) registered on the title.

The Australian Taxation Office considers that there are extremely limited circumstances where the legal and equitable interests are not the same, or if they differ, there must be sufficient evidence to establish that the equitable interest is different from the legal title.

Conclusion

In your case, you and your parents purchased a house as tenants in common. The house was rented out for a number of years, until your parents moved into the house.

You have not provided evidence to support that you were not a joint owner of the property. Your name on the title of the dwelling and as a co-borrower would indicate that you jointly purchased the dwelling with your parents. Therefore, for CGT purposes you are viewed as a joint owner of the dwelling and that when the dwelling was disposed of, you had disposed of your interest in the dwelling.

As you have never lived in the dwelling, the main residence exemption, either fully or partially, does not apply to you. Therefore you will not be able to disregard the capital gain made on the disposal of your share of the dwelling and it must be included in the relevant income tax return.

As you are an individual, you owned your share of the dwelling for longer than 12 months and the capital gain was made after 21 September 1999, you will be able to apply a 50% discount to your capital gain.

Note: While we acknowledge your circumstances, the Commissioner does not have any discretion available under legislation to allow you to disregard the capital gain made on the disposal of your share of the dwelling.

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