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Ruling
Subject: Capital gains tax - acquisition of property
Question
Was the property acquired prior to 20 September 1985?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2013.
Year ended 30 June 2014.
Year ended 30 June 2015.
The scheme commences on:
1 July 1999.
Relevant facts and circumstances
Some years prior to 20 September 1985, a verbal agreement was made between your parent and yourself. This agreement provided that you would acquire your parents farming business and farm property at some time in the future. The consideration for acquiring your parent's farming business and property would be by way of your 'continuous effort', your 'commitment', as well as monetary payments over time.
One of the critical conditions of the agreement was that the transfer of the property would not take place until your parent had received 'full payment'.
Some years after 20 September 1985 your parent agreed that full payment for the property had been received, and the property was transferred into your name.
From the time of the agreement until now the property has been continuously used for the purpose of producing primary production business income.
You and your parent entered into a Deed of 'gift' just before the transfer of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 104-15
Income Tax Assessment Act 1997 Section 109-5
Reasons for decision
Capital gains tax event A1 - Disposal of an asset
A capital gains tax (CGT) event occurs if a taxpayer disposes of a CGT asset. The disposal of a CGT asset takes place if a change of ownership occurs from a taxpayer to another entity, such as when an asset is transferred from one person to another by way of sale or gift.
If an asset is disposed of under contract, the time of the CGT event A1 happens when the taxpayer enters into the contract. If there is no contract for disposal of the asset the CGT event A1 happens when the change of ownership of the asset occurs.
Similarly, the time of the acquisition of an asset is at the time of the CGT event.
Capital gains tax event B1 - Use and enjoyment before title passes
CGT event B1 happens if a taxpayer enters into an agreement under which the right to the use and enjoyment of a CGT asset passes to another entity, and the title of the asset will, or may, pass to the other entity at, or before the end of, the agreement.
The Commissioner considers that CGT event B1 may happen when the agreement for the use and enjoyment of an asset is for a specified period, after which the title of the property passes to the other entity. CGT event B1 would not occur when the title of an asset may pass to the other entity at an unspecified time in the future.
The time of the CGT event B1 is when the other entity first obtains the use and enjoyment of the asset.
Application of the law to your facts
In your situation it must first be established whether CGT event A1 or B1 applies to your situation.
As you were working on and farming the property for some years prior to 20 September 1985, it could be considered that use and enjoyment of the asset passed to you at this time, with the legal title to the property passing to you some years later. However, the agreement with your parent was not made for a specified period of time, and would only pass to you when your parent acknowledged that you had 'paid' for the property through your 'effort' and 'commitment'. The amount of effort and the amount of commitment that would satisfy the condition of full payment was not quantified, and was up to the discretion of your parent.
Under these circumstances your agreement appears to be a family arrangement, rather than a formal verbal contract for the purchase of property.
Although you were working on the farm before the property passed to you, CGT event B1 does not apply to your situation.
The disposal of the property would then be CGT event A1. As you do not have a written contract for the purchase of the property, the timing of the CGT event will be the date that the property was transferred to you.
Further issues for you to consider
As you have held the property for a period of time approaching 15 years, you should consider the application of the small business concessions for CGT contained in Subdivision 152-C, 152-D, and 152-E of the Income Tax Assessment Act 1997 to your personal circumstances.