Edited version of your private ruling

Authorisation Number: 1012017400547

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Ruling

Subject: Capital gains tax - subdivision and transfer of ownership

Question 1: Did a capital gains tax (CGT) event occur when the block was subdivided into two blocks?

Answer: No.

Question 2: Will a CGT event occur when the titles to the two separate blocks of land are transferred into different names?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 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.

Late 2010, you, your defacto spouse (spouse), your child and their spouse purchased a property (the property).

The title to the property is registered as follows:

o you own less than X%

o spouse more than XX%,

o your child less than X%, and

o their spouse more than XX%.

The property was rented out for a period of less then 12 months.

The dwelling on the property has been demolished. It cost $X to demolish the existing dwelling.

The property has been subdivided into two equal sized Torrens titled blocks.

The titles to these new blocks will not be issued until after mid 2011.

The title to the new blocks will be issued in the followings names:

· block one - you and your spouse with different percentages of ownership, and

· block two - your child and their spouse with different percentages of ownership.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 103-5.

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Section 112-25.

Income Tax Assessment Act 1997 Section 116-20

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.

The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset and the time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs.

Subdivision

The subdivision of land is not a CGT event. At the time of subdivision each subdivided block will retain the original acquisition date. However, if there is a change of ownership interests at the time of the subdivision, there will be CGT implications.

For CGT purposes, if two or more individuals own a CGT asset, CGT applies separately to each of their interests in the asset.

Upon initial acquisition in late 2010 and before subdivision of the property, you and the other three other owners each owned different percentage amounts of interests in the property.

After the subdivision, you and the other owners will each have the same interest in each of the subdivided blocks (block one and block two). If there is no change in ownership of the subdivided land, there is no acquisition or disposal for CGT purposes.

In your case, as an owner of the property you own an interest in the property. Upon subdivision of the property into two blocks of land you are treated as if you own the same interest percentage in each of the two blocks of land

Change of ownership

However, as a result of the transaction whereby each of the owners have an interest solely in either block one or block two, each owner is taken to have disposed of his or her respective ownership interest in the subdivided block which is now owned by the other parties.

In your case, the asset created (block one) will be owned by you and your spouse in the ownership interests you choose to apply.

This change in ownership means that CGT event A1 has occurred. You make a capital gain if your capital proceeds exceed the cost base of the asset. You make a capital loss if the reduced cost base of the asset was higher than your capital proceeds.

There are various methods of determining the market value of a property at the time of disposal and two methods are:

· obtaining a valuation from a qualified valuer; or

· compute your own valuation based on reasonably objective and supportable data.

The capital proceeds you received for the disposal of your interest in block two is the market value of this interest on the date it is transferred into your child and their spouse's names.

Cost base

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

1. money or property given for the asset

2. incidental costs of acquiring the CGT asset or that relate to the CGT event

3. costs of owning the asset

4. capital costs to increase or preserve the value of your asset or to install or move it, and

5. capital costs of preserving or defending your ownership of or rights to your asset.

You can include your share of the costs incurred in subdividing the property into the two blocks, as well as other cost you incurred in relation to the property.

For more information on how to calculate your capital gain or capital loss please see the enclosed information which had been taken from Guide to capital gains tax 2011 (NAT 4151-6.2011). Information is also available on our website - www.ato.gov.au.