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Edited version of your private ruling
Authorisation Number: 1012079802054
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.
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Subject: Capital gains tax - Real property
Question 1:
Did you acquire the inherited interest in the property at the market value of that interest on the death of your relative?
Answer:
Yes.
Question 2:
Will you be able to use the discount method to calculate any capital gain tax that you may be liable for?
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.
You own a property.
The property was originally purchased prior to 20 September 1985 with your relative, owning a interest in the property and you and your spouse each owning a interest as tenants in common.
Your relative was a non resident of Australia
You, your spouse and relative borrowed an amount to purchase the property
Your late relative passed away after 20 September 1985 and you and your spouse inherited their share of the property.
The change in the interest of the property was registered after 20 September 1985
You disposed of the property and have made a capital gain.
You have provided the following document: valuation from Emerald Realty Pty Ltd dated 14 December 2011 which forms part of, and should be read in conjunction with, this private ruling.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 102-20(1)
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Paragraph 108-5(1)(a).
Income Tax Assessment Act 1997 Division 115
Income Tax Assessment Act 1997 Paragraph 128-15(4)
Reasons for decision
You make a capital gain or capital loss if a capital gains tax (CGT) event happens (subsection 102-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to a CGT asset.
Section 104-10 of the ITAA 1997 specifies that a CGT event A1 happens if you dispose of a ownership interest in a CGT asset.
The property owned by you, is a CGT asset (paragraph 108-5(1)(a) (ITAA 1997). The sale of the property will be a disposal which will give rise to CGT event A1 (section 104-10 of the ITAA 1997).
If the capital proceeds from the sale of the property are greater than the cost base of the property, you will make a capital gain. If the reduced cost base of the property is greater than the proceeds from the sale, you will make a capital loss.
As you inherited the interest of your relative, who was a foreign resident, the market value of the interest at the date of death is used to determine the first element of the cost base.
Discount method
Under Division 115 of the ITAA 1997, you can use the discount method to calculate your capital gain if:
· you are an individual, a trust or a complying superannuation entity
· a CGT event happens to an asset you own
· the CGT event happened after 11.45am (by legal time in the ACT) on 21 September 1999
· you acquired the asset at least 12 months before the CGT event and
· you did not choose to use the indexation method.
You are an individual, a CGT event has occurred to your property after the required period, you acquired the land at least 12 months before the property was disposed of, and if you do not choose the indexation method, you will satisfy all of the above conditions to use this method.
The discount method allows you to discount your capital gain. The discount percentage, which is the percentage by which you reduce your capital gain, is currently 50% for individuals.