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Ruling
Subject: Capital gains tax
Question and answer:
Are you required to include any capital gain or capital loss you make on the sale of the property in your income tax return?
Yes.
This ruling applies for the following periods:
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
You own a property.
The property was originally purchased by your parent prior to 1985.
You later purchased the property at market value from your parent. This happened at a time after 19 September 1985.
You gave your parent a life interest in the property and this was recorded on the land title.
Your relative later moved into the property with your parent.
Several years later, your parent moved into a nursing home. Your relative continued to live in the property.
Your parent has now died.
You changed the land title of the property after your parent's death so that there was no longer a life interest on the property.
Your relative continues to live in the property.
You are considering selling the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 100-35.
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Subsection 104-10(3).
Income Tax Assessment Act 1997 Subsection 108-5(1).
Income Tax Assessment Act 1997 Section 110-25.
Income Tax Assessment Act 1997 Subsection 110-45(1B).
Income Tax Assessment Act 1997 Section 116-20.
Income Tax Assessment Act 1997 Section 116-30.
Reasons for decision
Subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines a capital gains tax (CGT) asset as any kind of property or a legal or equitable right that is not property.
Section 102-20 of the ITAA 1997 states that you make a capital gain or capital loss if and only if a CGT event happens. CGT events are the different types of transactions or happenings which may result in a capital gain or a capital loss.
The disposal of a CGT asset is the most common CGT event and is referred to as CGT event A1 (section 104-10 of the ITAA 1997). A taxpayer disposes of a CGT asset if a change of ownership occurs from the taxpayer to another entity.
Subsection 104-10(3) of the ITAA 1997 describes when the event happens. The time of the event is either when the taxpayer enters into a contract for the 'disposal', or if there is no contract - when the change of ownership occurs.
In your case, CGT event A1 will happen when you sell the property.
The life interest that your late parent previously held has no effect on the CGT consequences of selling the property.
As the property has never been your main residence, you are not entitled to the main residence exemption. There are no other exemptions that apply in your circumstances.
Therefore, you must include any capital gain or capital loss you make from the sale of the property in your income tax return.
Calculating the capital gain or capital loss
You make a capital gain where the capital proceeds exceed the cost base (section 100-35 of the ITAA 1997).
Generally, the capital proceeds are the amount of money or the value of any property you receive or are entitled to receive as a result of a CGT event (section 116-20 of the ITAA 1997).
The cost base of an asset is generally what the asset costs you. The cost base is made up of five elements:
o money paid for the asset
o incidental costs of acquiring or selling it (e.g. stamp duty, conveyancing, real estate agent fees)
o cost of owning it (e.g. repairs)
o cost associated with increasing or preserving its value
o cost to preserve or defend a taxpayer's title or right to it
(section 110-25 of the ITAA 1997).
You cannot include in the cost base any expenses which you have already claimed as deductions (or were able to claim as deductions) in your income tax returns (subsection 110-45(1B) of the ITAA 1997).
In your case, you will include the price you paid your parent for the property in the cost base, as well as any other costs incurred that can be included in the five elements of the cost base.