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Edited version of your written advice
Authorisation Number: 1051198922107
Date of Advice: 6 March 2017
Ruling
Question 1: Can the Taxpayers apply the capital gains tax (CGT) discount of 50% to any capital gain they make from the sale of the properties?
Answer: Yes.
This ruling applies for the following period:
2015-16 income year
The scheme commences on:
1 July 2014
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The Taxpayers created a partnership on or about 1 July 2014 for the purpose of conducting a project. The Taxpayers received an ABN in respect of the project.
The project involved the purchase of a property. This property was bought under a contract that was made shortly after the partnership was created and settled about six weeks later.
Shortly afterward, the Taxpayers entered into a Building Contract with a builder for demolishing and building two new dwellings.
The Taxpayers took out a loan to fund the purchase of the property. The Taxpayers took out another loan to fund the construction costs.
Construction of the new dwellings was completed in accordance with the Building Contract and the property was subdivided in two with one new dwelling on each block.
About 13 months after the acquisition date, the Taxpayers entered into a contract for the sale of one subdivided property and settled the sale about nine months later.
About 14 months after the acquisition date, the Taxpayers entered into a contract for the sale of the other subdivided property and settled the sale about seven months later.
The Taxpayers were not involved in any building or construction activities and the partnership will have no further activities after this project.
The Taxpayers were residents of Australia throughout the period that they owned the properties.
Relevant legislative provisions
Income Tax Assessment Act 1997 Part 3-1.
Reasons for decision
Summary
The Taxpayers can apply the capital gains tax (CGT) discount of 50% to any capital gain they make from the sale of the properties.
Detailed reasoning
The Taxpayers can apply the CGT discount of 50% to any capital gain they make from the sale of the properties because:
● The Taxpayers are individuals - the capital gains provisions apply to the individual owners and not to their partnership
● The Taxpayers were residents of Australia throughout the period they owned the properties
● The CGT discount that applies to resident individuals is 50%
● CGT event A1 applies to each sale
● Each property was acquired more than 12 months before its CGT event
● The CGT event has happened after 21 September 1999
● The cost base of the properties cannot be indexed as they were acquired after 21 September 1999
When applying the 12 month test, it is important to remember that the CGT provisions apply to the properties in the following way:
● The property as bought is the CGT asset until it is subdivided in two
● The property was acquired on the date the Taxpayers entered into the purchase contract
● The dwellings are improvements to the property as bought - they are not separate assets
● Subdividing the property in two doesn't re-set the acquisition date
● Therefore, the first subdivided property was acquired on the original acquisition date and the CGT event happened some 13 months later
● And, the second subdivided property was acquired on the same original acquisition date and the CGT event happened some 14 months later
Note: this private ruling only considers the application of the capital gains provisions.
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