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Edited version of your written advice
Authorisation Number: 1051228121474
Date of Advice: 25 May 2017
Ruling
Subject: CGT - Mortgagee in possession - Disposal of land
Question 1
Was the Taxpayer the owner of the Property just before the Disposal?
Answer
Yes
This ruling applies for the following periods:
Income year ending 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
X years ago, the taxpayer acquired a property.
The taxpayer borrowed funds from Entity A.
Shortly afterwards, the taxpayer was in default and went into bankruptcy.
Entity A sent a letter to Council advising possession of the Property.
Entity A failed to lodge a Land Acquisition notice with the Council and advise the State Revenue Office of the purported change of ownership.
The Council changed the name on the rates notice to Entity A in possession.
Y years ago, the taxpayer was discharged from bankruptcy.
The taxpayer sent a letter to the Trustee in Bankruptcy requesting notification of any property left over or whether there were any outstanding responsibilities.
The Trustee in Bankruptcy refused to supply any information.
The Council advised the taxpayer that the rates on the Property were being paid by Entity A in possession.
The taxpayer contacted Entity A and requested a discharge of the mortgage that was refused.
In 20XX Entity A sold the Property and settlement occurred.
Relevant legislative provisions
Income Tax Assessment Act 1936 s 254(1)
Income Tax Assessment Act 1997 s106-30
Income Tax Assessment Act 1997 s1064-10
Bankruptcy Act 1966
Reasons for decision
Summary
The taxpayer is liable for CGT on the disposal of land.
Detailed reasoning
Subsection 106-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the vesting of assets in a trustee under the Bankruptcy Act 1966 is ignored for capital gains tax purposes.
As a CGT event does not occur under the vesting of an asset, the taxpayer retains ownership of the asset for capital gains purposes.
Further, subsection 106-30(2) of the ITAA 1997 states that any acts undertaken by the trustee in relation to the vested asset are taken to be those of the insolvent person, consequently, a disposal of an asset by a trustee is considered to be a disposal by the insolvent person.
Also, subsection 103-10(1) of the ITAA 1997 states that a taxpayer has received money or other property if it is applied for their benefit (including by discharging all or part of a debt they owe).
In the Taxpayer's case, a CGT event A1 happened when the trustee sold the Property. The liability for CGT on the capital gain made on the sale is borne by the Taxpayer (as owner of the Property for capital gains purposes), in the income year in which the disposal occurs.
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