1052354164002 | Legal database

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Edited version of private advice

Authorisation Number: 1052354164002

Date of advice: 23 January 2025

Ruling

Subject: CGT - asset

Question

Are you required to pay capital gains tax on a disposal of property in the year the CGT event occurs?

Answer

Yes. A capital gain or loss is realised at the time of the CGT event. Therefore, you must report any capital gain or loss that occurs in the income year that the CGT event occurs.

This ruling applies for the following period:

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

On XX XXXX 19YY, you acquired a XX percent ownership interest in the Property. Person 1 and Person 2 acquired XX percent ownership interests in the Property.

The property was situated on land sized approximately XX square metres. Your cost base for the acquisition and later subdivision of the Property was $XX.

On XX XXXX 20YY, the property was subdivided into two lots with land sizes as follows:

• Lot 1 XX square metres.

• Lot 2 XX square metres.

Lot 1 and 2 shared the same ownership interests as you retained XX percent interest in each lot, while Person 1 and 2 shared the remaining XX percent each.

On XX XXXX 20YY, Lot 1 was sold for $XX. Lot 2 proved difficult to sell, therefore, Person 1 and 2 agreed to sell their interests in Lot 2 to you for a purchase price of $XX. You proceeded to purchase Person 1 and 2's respective interests in the Property on this date.

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 108-5

Income Tax Assessment Act 1997 section 116-20

Reasons for decision

when a person disposes of a CGT asset to someone else. A capital gain or loss under this section is made at the time of the CGT event.

Under section 108-5 of the ITAA 1997 a CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include part of, or an interest in property or a legal or equitable right that is not property.

Subsection 104-10(3) of the ITAA 1997 provides that you dispose of a CGT asset when you either enter into a Section 102-20 of the Income Tax Assessment Act 1997 ('ITAA 1997') provides that you make a capital gain or loss as a result of a capital gains tax ('CGT') event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else. A capital gain or loss under this section is made at the time of the CGT event.

Subsection 104-10(3) of the ITAA 1997 provides that you dispose of a CGT asset when you either enter into a contract for its disposal, or where no contract exists, when the change of ownership occurs.

Subsection 104-10(4) of the ITAA 1997 provides that you make a capital gain if the capital proceeds from the disposal are more than the asset's cost base and you make a capital loss if those capital proceeds are less than the asset's reduced cost base.

Section 116-20 of the ITAA 1997 provides the definition of capital proceeds. Capital proceeds are the total of the money you have received or are entitled to receive and the market value of any other property you have received or are entitled to receive.

Application to your circumstances

A capital gain or loss is realised at the time of the CGT event. You have indicated that CGT event A1 for Lot 1 occurred on XX XXXX 20YY, and the capital proceeds from the sale exceeded the cost base. As a result, you are required to report the capital gain in the 20YY income year, regardless of using the proceeds to acquire the remaining interests in Lot 2.

You have suggested that the capital gain should be deferred until the eventual disposal of Lot 2. You acquired a XX percent ownership interest in Lot 2 at a cost of $XX. Therefore, the cost base of your additional XX percent ownership in Lot 2 includes the purchase price of $XX, which will reduce your capital gain upon the future disposal of Lot.2

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