Edited version of private advice

Authorisation Number: 1052392958211

Date of advice: 20 May 2025

Ruling

Subject: Capital gains tax

Questions and answers

Question 1

Will a capital gains tax (CGT) event occur on the sale of the property?

Answer 1

Yes.

Question 2

Can you use carried forward capital losses from prior years to offset capital gains incurred upon the disposal of the property?

Answer 2

Yes.

Question 3

Are you entitled to claim the CGT discount?

Answer 3

Yes.

This ruling applies for the following period:

Income year ending XX XXXX 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You purchased property in 20XX. You paid $X for it.

The ownership interest is 50/50.

You will sell the land for less than the market value.

The buyer is a not-for-profit organisation.

You have carried forward capital losses from the 20XX income year. The losses are owned 50/50.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 100-50

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 Subdivision 115-A

Reasons for decision

Summary

A CGT event A1 will occur when you sell the property below its market value. You are entitled to apply carried forward losses against any capital gains you make when you sell the property. If, after applying the capital losses you still have a capital gain, you are entitled to apply the CGT 50% discount to the remaining capital gain.

Detailed reasoning

CGT is income tax paid on any net capital gain made as the result of a CGT event taking place. CGT events are the different types of transactions that may result in a capital gain or capital loss. As a general rule, whenever a CGT asset, such as property that was acquired after 20 September 1985 (post-CGT), is sold (or otherwise disposed of) as part of a CGT event, you will be subject to the CGT provisions and will need to determine whether a capital gain or capital loss has resulted.

This type of CGT event is known as CGT event A1 and generally occurs whenever there is a change in ownership of a post-CGT asset from one entity to another.

Any capital gain is added to any other assessable income you derived for the relevant year and you are then taxed at the appropriate marginal tax rate.

CGT losses

Section 100-50 of the ITAA 1997 allows that if you have carried forward capital losses, you use them to offset your current year capital gains. If your prior year capital losses extinguished your current year capital gain, you do not have a current year capital gain.

CGT discount

Subdivision 115-A of the ITAA 1997 allows you to discount your capital gains. When you sell or otherwise dispose of an asset, you can reduce your capital gain by 50%, if both of the following apply:

•                you owned the asset for at least 12 months

•                you are an Australian resident for tax purposes.

This is called the capital gains tax (CGT) discount.

If you have any capital losses from other assets (including carried forward capital losses), you must subtract these from your capital gains before applying the discount.

If you are entitled to the discount for an asset, you reduce the remaining capital gain on that asset by 50% and report this amount in your income tax return.

Application to your situation

CGT event A1 will occur when you transfer your ownership interests in the property to the not-for-profit organisation, and you are not able to disregard any capital gain or capital loss that results. As you each hold a 50% ownership interest in the land, any capital gain or loss resulting from the sale will be divided 50/50 in line with your respective ownership interests.

You can each apply your share of the prior year capital losses to offset any capital gains you each incur. If your prior year capital losses extinguish your current year capital gain, you do not have a current year capital gain.

As you have each jointly owned the property for more than 12 months and you are Australian residents for tax purposes, you are each entitled to apply the CGT discount to further reduce your share of any capital gain by 50%.

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