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Edited version of your private ruling
Authorisation Number: 1012031859931
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Ruling
Subject: Capital gains tax - gifting of property back to your sibling
Question: Will you make a capital gain or capital loss when you gift the property back to your sibling?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
In late 2001, your sibling gifted you their property (the property).
The title of the property was transferred into your name in late 2001
Your sibling gifted the property to you because they were interned for a period.
The property was your sibling's main residence prior to their internment.
The property has not been used to produce assessable income.
You are gifting the property back to your sibling in the near future.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 112-20
Reasons for decision
You make a capital gain or capital loss when a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset. 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 considering whether the transfer of title of an asset, such as land, is a disposal, the most important element in the application of the CGT provisions is ownership. Both legal and beneficial ownership must be determined.
In the absence of evidence to the contrary, property is considered to be owned absolutely by the person(s) registered on the title.
As the owner of the property, CGT event A1 will occur when you gift the property back to your sibling as it is considered to be a disposal, as a change of ownership, will occur.
As you will not receive any consideration for this event the market value substitution rule will apply. This means that the market value of the property at the time it is transferred is taken to be the amount of the capital proceeds received. The market value is worked out at the time of the CGT event, which in your case will be the date the property is transferred into your sibling's name.
There are various methods of determining the market value of a property at the time of disposal and two methods are:
o obtaining a valuation from a qualified valuer; or
o compute your own valuation based on reasonably objective and supportable data.
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.
For more information on how to work out your capital gain or capital loss please see enclosed information which 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.