Edited version of private ruling

Authorisation Number: 1011752071074

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Capital gains tax - joint ownership

Question 1

Is silver bullion subject to capital gains tax on sale?

Answer

Yes.

Question 2

Are the interest and fees of the loan included when calculating the cost base of the CGT asset?

Answer

Yes.

Question 3

Does the 50% capital gains tax discount apply when the bullion is sold after being held for 12 months?

Answer

Yes.

Question 4

Is the capital gains tax proportioned 50/50 between my spouse and myself?

Answer

Yes.

Question 5

Does this private ruling apply to bullion bought with cash previously and subsequent to this ruling?

Answer

No.

This ruling applies for the following periods

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2010

Relevant facts

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 and your spouse applied jointly for a loan for the purpose of purchasing silver bullion.

Your spouse went to the Mint to purchase the bullion on behalf of both of you. Your spouse paid for the bullion with a cheque from your joint bank account. You were not with your spouse at the time of purchase.

The Mint where you purchased your bullion requires that all purchasers must supply identification when purchasing bullion. The Mint's procedures for purchasing bullion state that they will not issue a receipt to a third party unless you present documents which specify your ability to act on behalf of another person. The Mint issued a tax invoice in your spouse's name only, however it was your intention both before and after purchase that you and your spouse would own the investment jointly.

You have taken delivery of the bullion. The title to the bullion is not registered.

You intend to hold on to the bullion as a long term investment.

You will make a capital gain on the bullion when you do sell.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-5
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 108-1
Income Tax Assessment Act 1997 Section 108-7
Income Tax Assessment Act 1997 Section 110-25
Income Tax Assessment Act 1997 Subsection 110-45(1B)
Income Tax Assessment Act 1997 Paragraph 115-10(a)
Income Tax Assessment Act 1997 Section 115-15
Income Tax Assessment Act 1997 Section 115-25
Income Tax Assessment Act 1997 Subsection115-100(a)
Income Tax Assessment Act 1997 Section 116-20
Taxation Administration Act 1953 Subsection 357-60(1)
Taxation Administration Act 1953 Section 359-5

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

A capital gain is income that is derived from the disposal of property. Your assessable income includes your net capital gain for an income year. Your net capital gain is the total of your capital gains for the year, reduced by your capital losses.

You make a capital gain or loss only if a capital gains tax (CGT) event happens. The most common CGT event is when you dispose of a CGT asset to someone else.

For capital gains tax purposes a CGT asset is:

· Any kind of property; or

· A legal or equitable right that is not property.

You make a capital gain or a capital loss if a CGT event happens.

In your case:

· silver bullion is a kind of property, and is therefore a CGT asset.

· disposing of your bullion to someone else will be CGT event.

· you will need to include any resultant net capital gain received when you sell your bullion in your assessable income.

Question 2

The cost base of a capital gains tax asset is generally the cost of the asset when you bought it. However, it also includes certain other costs associated with acquiring, holding and disposing of the asset.

The cost base of a CGT asset is made up of five elements:

· Money or property given for the asset

· Incidental costs of acquiring the CGT asset or that relate to that event

· Costs of owning the asset

· Capital costs to increase or preserve the value of your asset or to install or move it

· Capital costs of preserving or defending your ownership of rights to your asset

You need to work out the amount for each element, then add them together to work out the cost base of your CGT asset.

For example:

Element 1 would include the amount that you paid for your bullion.

Element 2 would include borrowing costs such as loan application fees and mortgage discharge fees.

Element 3 would include interest payments on borrowings to finance your purchase of the bullion, as long as they have not been previously claimed as a tax deduction.

Element 4 would include costs associated with transporting the asset.

Element 5 would include costs incurred when defending your ownership, such as a legal challenge.

In your case you have incurred costs for interest payments for your loan used to purchase bullion. You would not be able to include these costs as a deduction from your assessable income as the bullion has not been used to produce your assessable income. You would then be able to include the interest payments in calculating the cost base of your asset.

Please note that if you make a loss your reduced cost base is calculated differently. Element 3 costs are not included in your calculations.

Question 3

You can use the discount method to calculate your capital gain if:

· you are an individual.

· a CGT event happens to an asset you own.

· you acquired the asset at least 12 months before the CGT event

· the CGT event happened after 11.45am on 21 September 1999.

In your case:

· You are an individual.

· Disposing of your bullion will be a CGT event.

· You are intending to hold the asset for longer than 12 months.

· The event will take place after 21 September 1999.

· You can then use the discount method to calculate your capital gain.

To calculate your capital gain using the discount method:

· subtract the cost base from the relevant proceeds

· apply all capital losses from that income year

· apply any unapplied losses from previous years

· multiply this amount by 50%.

This is the amount of your net capital gain.

Question 4

Individuals who own a CGT asset as joint tenants are treated as if they each own a separate CGT asset made up of equal shares of the asset, in the same way as tenants in common are treated.

As you and your spouse have

· financed the purchase of bullion jointly,

· paid for the bullion from your joint bank account,

· had the bullion allocated to you, and

· always intended the purchase to be a joint one,

· you are considered to own the bullion as joint tenants.

As joint tenants any net capital gain or loss should be proportioned between you and your spouse equally.

Question 5

In a private ruling the Commissioner considers how a relevant provision applies to you in relation to a specified scheme. A private ruling is binding on the commissioner, and provides certainty for the tax payer by ensuring that you are protected from a tax short fall and from general interest charges if you rely on this ruling. Accordingly, this ruling applies only to the facts that have been supplied, and does not apply to any previous or any future schemes, even if they are substantially similar.