Edited version of private ruling

Authorisation Number: 1011609511127

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Ruling

Subject: Capital gains tax (CGT) - ownership of CGT asset

1. Will the disposal of a property a CGT event for you?

Yes.

2. Is the capital gain calculated by subtracting the cost base from the capital proceeds received proceeds from the disposal of the property?

Yes.

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.

You purchased a block of land.

Your name is on the certificate of title and the mortgage documentation.

You later obtained a licence to build a residential house and with the assistance of your family built a new house on the block of land. This property was later re -zoned.

The money used to pay the deposit and build the dwelling was provided by your family.

You never resided in the dwelling.

The dwelling has only been used as your parents' residence.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10.

Detailed reasoning

Question 1

You make a capital gain or capital loss if a CGT event happens. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. CGT events are the different types of transactions or events that may result in a capital gain or capital loss. The disposal of the property will trigger CGT event A1.

Taxation ruling 93/32 discusses the division of net income or loss between co-owners of a rental property and can be used as a guide in this case. The ruling explains that the loss or income from a rental property must be shared according to the legal interest of the owners, except where there is sufficient evidence to establish that the equitable (or beneficial) interest is different from the legal title. This principle also applies to CGT assets.

Paragraphs 38 to 41 of TR 93/32 address the legal and equitable interests issue confirming at paragraph 41 that there are extremely limited circumstances where the tax office will accept that the equitable interest is different from the legal title. Where the taxpayers are related, the Tax office will assume that the equitable right is exactly the same as the legal title.

In this case, the property was purchased and held solely in the taxpayers name, as a result the taxpayer will be liable for any capital gain on the disposal of the property.

Question 2

Summary

Capital gains are calculated by subtracting the cost base from the proceeds from the disposal of a CGT asset.

Detailed reasoning

You make a capital gain or capital loss if a CGT event happens. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. CGT events are the different types of transactions or events that may result in a capital gain or capital loss.

The net capital gain is added to the other income you have derived and taxed at your marginal rates.