Edited version of private ruling

Authorisation Number: 1011627020103

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Ruling

Subject: Capital gains tax - disposal of vacant block of land - ownership interest - capital loss

Will you be eligible to offset all of the capital loss made on the disposal of the jointly owned vacant block of land?

No.

This ruling applies for the following period

Year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts and circumstances

You and your spouse jointly owned a vacant block of land.

You and your spouse separated and were divorced about twelve months later.

A court order provided during the property settlement outlined that your ex-spouse was to transfer their right, title and interest in the vacant block of land to you and that you would pay for the transfer of your ex-spouse's interest. It also provided that the mortgage associated with the land would be discharged, and refinanced in your name only.

You approached your bank in relation to refinancing your properties, and due to your financial position, it was decided that you would dispose of the vacant block of land.

You disposed of the vacant block of land a number of months after settlement had occurred.

You and your ex-spouse were listed as the sellers of the land on the contract for sale.

Your ex-spouse's interest in the vacant block of land had not been transferred into your name prior to the disposal of the land.

A capital loss was made on the disposal of the vacant block of land.

You had assumed the debt associated with the vacant block of land from the date of your separation until the present time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-10

Income Tax Assessment Act 1997 Section 102-15

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 118-130

Income Tax Assessment Act 1997 Section 126-5

Reasons for decision

Disposal of vacant land

You make a capital gain or capital loss when a capital gains tax (CGT) event happens to a CGT asset. The most common event, CGT event A1, occurs when you dispose of your ownership interest in the asset to another entity such as when you dispose of, or transfer, you ownership interest in land.

There are exceptions to the general rule about the application of the capital gains provisions. For example, under the marriage breakdown roll-over, where spouse's transfer assets to each other and the relevant conditions have been met, such as the transference occurs as a result of a Court order issued under the Family Law Act 1975 and the asset is transferred to one of the spouse's in compliance with the court order. Under this roll-over, the individual receiving the asset, the transferee spouse, will make the capital gain or capital loss when they subsequently dispose of the asset.

When considering the disposal of your interest in a property, the most important element in the application of the CGT provisions is ownership. A person's legal interest in a property is determined by the legal title to that property under the land law legislation in the State or territory in which the property is situated. The legal owner of the property is recorded on the title deeds for the property issued under that legislation.

In your case, your ex-spouse was to transfer their interest in a block of vacant land to you in compliance with a court order provided during your marriage settlement. You subsequently disposed of the vacant block of land before your ex-spouse had transferred their share in the land to you. The contract for sale of the land lists both you and your ex-spouse as the sellers of the land.

As your ex-spouse's interest in the land was never transferred to your, the marriage breakdown exception does not apply, and any capital loss made on the disposal of the land should be apportioned on the same basis as the ownership interest in the land.

Therefore, it is viewed that when the block of land was disposed of, you and your ex-spouse were still joint owners of the block of land. Therefore, you will only be eligible to the capital gain applicable to your ownership interest in the vacant block of land. Your capital loss can be offset against any capital gain you make in the same income year, or if none, carried forward to be offset against any capital gains made in future income years.