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Edited version of your private ruling
Authorisation Number: 1012491278683
Ruling
Subject: capital gains tax
Question
Will the property remain exempt from the capital gains tax provisions in Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) after it is transferred to you and your spouse as tenants in common?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You and your spouse acquired a property prior to 20 September 1985.
You and your spouse hold the property as joint proprietors.
You and your spouse intend to transfer the property so it is held as tenants in common in equal shares.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 108-7
Income Tax Assessment Act 1997 Part 3-1
Income Tax Assessment Act 1997 paragraph 104-10(5)(a)
Reasons for decision
Under section 120-20 of the ITAA 1997, an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset.
CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997).
A capital gain on the disposal of an asset can be disregarded under paragraph 104-10(5)(a) of the ITAA 1997 if it was acquired prior to 20 September 1985.
Beneficial ownership
A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset. It is the beneficial owner of a CGT asset that is liable for capital gains tax upon sale of the assets.
Joint tenants and tenants in common
Under section 108-7 of the ITAA 1997, if you are a joint tenant you are treated as if you are a tenant in common owning equal shares in the asset for CGT purposes.
Application to your circumstances
In this case, you and your spouse hold a property as joint tenants. For CGT purposes it is treated as if you and your spouse are tenants in common owning equal shares. When the transfer is carried out so that you and your spouse hold the property as tenants in common, there will be no change to the beneficial ownership of the property. Therefore, a CGT event will not occur when the transfer is carried out.
As you and your spouse acquired the property before 20 September 1985, the property is exempt from the CGT provisions in Part 3-1 of the ITAA 1997.