Edited version of private ruling

Authorisation Number: 1011771436760

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Ruling

Subject : Capital Gains Tax for the sale of property

Question and Answer

Are you liable for Capital Gains Tax for the sale of property you own as a tenant in common?

No.

This ruling applies for the following period

1 July 2010 to 30 June 2011

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.

In xxxx you purchased a property in your name.

Prior to subdividing the property you added two names to the title.

On xxxx the three title holders signed a deed.

You share of the property is xx% and the other title holders have x% each.

The property was subdivided into six lots as per the Deed.

According to the Deed;

Upon completion of the development the parties agree as follows:

(a) Lots 3,4,5 and 6 will be transferred to A and they alone will be liable for all costs and stamp duty associated with the transfer.

(b) Lot 1 will be transferred to B and they alone will be liable for all costs and stamp duty associated with the transfer.

(c) Lot 2 will be transferred to C, and they alone will be liable for all costs and stamp duty associated with the transfer.

In xxxx the development was completed.

In xxxx Lot 1 was sold.

The full sale amount was received by B into their bank account.

You and C did not receive any of the proceeds of sale even though your names were on the title.

Lot 1 was not transferred into B's name because they advised you it would cost money and they already had a buyer.

B advised the title should be transferred directly into the buyer's name.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Subsection 104-10(1)
Income Tax Assessment Act 1997 Subsection 104-10(2)
Income Tax Assessment Act 1997 Section 109-5

Reason for Decision

Generally a legal interest in land is achieved by the owner being the registered proprietor of the legal title to the land. Where there is more than one person with a concurrent legal interest in the same land, those persons are co-owners of the land.

An important feature of both a joint tenancy and a tenancy in common is the legal interest of the tenant. It is this legal interest which ultimately determines, among co-owners of property, the division of the net income or loss from the property.

Joint Tenants

Joint tenants of a property will hold identical legal interests in the property. That is their interest must be the same in extent, nature and duration.

Tenants in Common

Legal interests of tenants in common need not be identical. That is, the extent, nature and duration of each co-owner's interest need not be the same.

The property you co-own falls under the tenants in common arrangement because you divided the interest as follows;

· You hold xx%,

· B holds x%,

· C holds x%

Legal and equitable interests

A persons' 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.

However it is possible for the legal ownership of an asset to differ from the beneficial ownership.

Where the legal and beneficial ownership of an asset differ, a trust situation occurs. In this situation the legal owner is the trustee of the asset.

It is in extremely limited circumstance where the legal and equitable interests are not the same (Taxation Ruling TR 93/32) and there is no evidence to support a trust has been created over the land in this situation.

Capital Gains Tax

Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).

Generally, you acquire a capital gains tax asset (CGT) asset when you become its owner.

You then make a capital gain or capital loss when a CGT event happens in relation to that asset.

The most common event (CGT event A1) happens if you dispose of a CGT asset to someone else. In your situation, this will be the sale of Lot 1 (section 104-10 of the ITAA 1997).

When considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the asset.

In absence to the contrary, property is considered to be owned by person(s) registered on the title.

CGT event A1

Subsection 104-10(1) of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset.  Subsection 104-10(2) of the ITAA 1997 states that you dispose of an asset if there is a change of ownership from you to another entity. 

In general you acquire a CGT asset when you become its owner. In your situation you acquired your ownership interest in the property upon purchase of the property (section 109-5 of the ITAA 1997).

The sale of property is a CGT event A1. You dispose of a CGT asset if a change of ownership occurs from you to another entity. The time of the event is when you enter into the contract for the disposal. You make a capital gain if the capital proceeds from the disposal are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base.

You, B and C are the co-owners of the property and CGT event A1 occurred when Lot 1 was sold.

The Deed shows you and the co-owners intended to transfer all the Lots into the respective title owner's names, however, the sale of Lot 1 occurred before this could happen.

Therefore you are not liable for any CGT on Lot 1 when it was sold.