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Ruling

Subject: Capital gains tax - transfer of interest in property

Question 1: Does a capital gains tax (CGT) event occur upon the transfer of your interest in the townhouse to the other joint owner?

Answer: Yes

Question 2: Is the capital gain made on the transfer of your interest in the townhouse to the other joint owner disregarded?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

In early 2007 you agreed to provide an interest free loan to your friend to acquire a property (the property).

To ensure the repayment of the joint loan which was taken out to acquire the property you had a legal agreement drawn up by your lawyer.

This agreement outlines the terms and conditions in respect of this loan.

The agreement has been signed by both you and your friend.

You and your friend obtained a joint loan from a financial institution.

The property was purchased in joint names.

Under the agreement your friend has the right to reside in the property as their main residence.

Your friend pays all costs associated with the townhouse, such as loan repayments and utility costs.

In early 2012 your friend is required under the agreement to arrange the refinancing of the loan with the financial institution into their name and repay you the money that you contributed to the purchase of the property.

Upon receipt of the monies outstanding to you the property will be registered solely in your friend's name.

The townhouse has increased in value since its original purchase in April 2007.

You have provided a copy of the following documentation to support your application and this document is to be read with and forms part of your application for the purpose of this ruling:

Agreement - ownership of property between you and your friend.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 116-20

Income Tax Assessment Act 1997 Section 102-30

Income Tax Assessment Act 1997 Section 116-30

Reasons for decision

You make a capital gain or capital loss when a CGT event happens to a CGT asset. 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 its disposal or if there is no contract when the change of ownership occurs.

When you transfer an interest in an asset that is jointly owned into one of the original owner's name a CGT event A1 will occur as the ownership interest in the asset will change.

You make a capital gain if your capital proceeds are more than your cost base. You make a capital loss if your capital proceeds are less than the reduced cost base.

The capital proceeds from a CGT event are replaced with the market value of the CGT asset that is subject to the event if:

· some or all of those proceeds cannot be valued, or

· those capital proceeds are more or less than the market value of the asset, and

· you and the individual that acquired the asset from you did not deal with each other at arm's length in connection with the event, or

· the CGT event is CGT event C2 (about cancellation, surrender and similar endings).

There are a number of methods of calculating the market value of an asset but two methods for determining the market value of the property at the time of disposal are:

· obtaining a valuation from a qualified valuer; or

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

As the dwelling was not your main residence and was acquired after 20 September 1985 any capital gain is not disregarded.

As you meet all the necessary criteria you can use the CGT discount method to calculate your net capital gain.

For more information on how to calculate your capital gain please the enclosed information, this information has been taken from the Guide to capital gains tax - 2010-11 (NAT 4151-6.2011). Information is also available on our website - www.ato.gov.au.