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Edited version of your private ruling
Authorisation Number: 1012565990758
Ruling
Subject: Acquisition date of property
Question 1
Will you be considered to be absolutely entitled to the property from the date it was acquired by your relative prior to 20 September 1985?
Answer:
No
Question 2
Will the property be considered to have been acquired by you prior to 20 September 1985, thereby allowing you to disregard any capital gain or loss you may make on the later disposal of the property?
Answer:
No
This ruling applies for the following period
Year ended 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
A letter from a firm of solicitors states that the property was purchased by A prior to 20 September 1985.
The certificate of title of the property shows that A was the registered proprietor of the property prior to 20 September 1985.
The certificate of title of the property shows that B was the registered proprietor of the property from a date after 19 September 1985.
The transfer document shows that the property was transferred from A to B and states that the transferor (A) 'hereby acknowledges receipt of the consideration of a sum of money and transfers an estate in fee simple in the land to the transferee' (B).
The acknowledgment agreement provides the following details:
Whereas:
A. A was indebted to B for certain moneys then owing and due; and
B. By an agreement for sale of land of even date herewith, A has agreed to convey to B the property and B has agreed to accept the transfer of the property in full satisfaction of all moneys and obligations outstanding to them from A.
Now this acknowledgment witnesseth that B hereby releases A from any and all debts outstanding to B from A as at the date hereof in consideration for the transfer from A to B of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 109-5
Income Tax Assessment Act 1997 Section 106-50
Reasons for decision
Disposals and acquisitions
Section 104-10 of the Income tax Assessment Act 1997 (ITAA 1997) provides that capital gains tax (CGT) event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. The time of the event is:
a) when you enter into the contract for the disposal; or
b) if there is no contract - when the change of ownership occurs.
Subsection 104-10(5) of the ITAA 1997 provides that any capital gain or loss made from the event will be disregarded if you acquired the asset before 20 September 1985 (pre-CGT).
Section 109-5 of the ITAA 1997 provides that you acquire a CGT asset when you become its owner. The time at which you acquire a CGT asset, as a result of CGT event A1 happening, is when the disposal contract is entered into, or if none, when the entity that disposes of the asset stops being the asset's owner.
Absolute entitlement
Draft Taxation Ruling TR 2004/D25 discusses the concept of 'absolute entitlement' and states, at paragraph 10, that:
The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction.
Further, at paragraphs 21 and 22 of TR 2004/D25 it states;
A beneficiary has all the interests in a trust asset if no other beneficiary has an interest in the asset (even if the trust has other beneficiaries).
Such a beneficiary will be absolutely entitled to that asset as against the trustee for the purposes of the CGT provisions if the beneficiary can (ignoring any legal disability) terminate the trust in respect of that asset by directing the trustee to transfer the asset to them or to transfer it at their direction
As a sole beneficiary, in respect of an asset, has the totality of the beneficial interests in the asset, they automatically satisfy the requirement that their interest in the asset be vested in possession and indefeasible.
Section 106-50 of the ITAA 1997 explains that if you are absolutely entitled to a CGT asset as against the trustee of a trust (disregarding any legal disability), this Part and Part 3-3 apply to an act done by the trustee in relation to the asset as if you had done it. In these cases, no CGT event will happen when the legal title in the asset is transferred to the beneficiary as the beneficiary is already considered to be the 'owner' of the asset. The beneficiary would be considered to be the 'owner' of the asset from the time they became absolutely entitled.
Application to your circumstances
Based on the information provided, A acquired the property prior to 20 September 1985. Later, afer 19 September 1985, a transfer contract was entered into between A and B to transfer ownership of the property from A to B for consideration. On this date, CGT event A1 happened as ownership was transferred from one entity to another under the transfer contract. Accordingly, B is considered to have acquired the property after 19 September 1985, making the property a post-CGT (post 20 September 1985) asset in the hands of B.
There is no indication, from the information provided, that there was any bare trust arrangement in existence, this is because:
· the acknowledgement agreement makes no mention of the property being held in trust for B, it merely acknowledges that a debt was owed by A to B and that the debt is satisfied by the transfer of property
· the transfer contract does not evidence that a bare trust arrangement was in place, it only evidences that a transfer of property occurred.
· the transfer contract indicates that consideration was paid to A for the transfer
Therefore, as a bare trust is not considered to exist, it would not be possible for B to be 'absolutely entitled' to the property as against the trustee from the time it was acquired by A.
Instead, it appears that A either simply owed money to B and this debt was extinguished by the transfer of the property owned by A to B (which is confirmed by the acknowledgment agreement), or, that consideration was paid by B for the property to be transferred to them which is simply an acquisition of the property.
Accordingly, we consider that B's acquisition date was the date of the transfer contract, making the property a post CGT asset for the purposes of the capital gains tax provisions. Consequently, you will not be able to disregard any capital gain or loss you may make on the later disposal of the property.
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