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Edited version of your private ruling
Authorisation Number: 1012497911101
Ruling
Subject: Capital gains tax
Question 1
Can you disregard any capital gain you make if you transfer your property for no consideration to a special disability trust within the meaning of the Social Security Act 1995?
Answer
Yes.
Question 2
Is the cost base of the property donated to the special disability trust the market value at the date of transfer?
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
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 are power of attorney and carer to your sibling who has a disability.
As a result of an inheritance, a property was purchased for income producing purposes held by you in trust for your sibling.
Your sibling is currently being assessed in order to establish a Special Disability Trust (SDT).
Upon establishment of the SDT, you want to transfer the property by way of donation to the SDT.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-5.
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 108-5.
Income Tax Assessment Act 1997 Section 116-30.
Income Tax Assessment Act 1997 Section 118-85.
Income Tax Assessment Act 1997 Section 112-20.
Income Tax Assessment Act 1997 Section 995-1.
Reasons for decision
Question 1
Detailed reasoning
Real estate is a capital gains tax (CGT) asset.
Real estate that is acquired on or after 20 September 1985 is subject to the CGT provisions of the tax law.
If you own a CGT asset and a change of ownership occurs from you to another person or entity, you are considered to have disposed of the asset.
When you dispose of a CGT asset, CGT event A1 happens. In the case of real estate, the time of the event is when the contract for the disposal is entered into. If there is no contract, the event occurs when the change of ownership takes place.
When a CGT event happens to a CGT asset you own, you make a capital gain or loss at the time of the event, depending on whether the capital proceeds from the CGT event are more or less than the cost base/reduced cost base of the CGT asset.
For CGT purposes, when assets are disposed of for no consideration, a special rule known as the market value substitution rule applies. The effect of this rule is that you are taken to have received consideration equal to the market value of the asset at the time of the CGT event.
Generally, any assessable gain made from a CGT event is included in your assessable income in the income year in which the event happens. However, in some cases an exemption may apply that allows a taxpayer to reduce, or disregard (and therefore not include in their assessable income), any gain or loss made as a result of a CGT event. Where applicable, such exemptions are provided for by the tax law.
Section 118-85 of the Income Tax Assessment Act 1995 (ITAA 1997) provides that you can disregard any capital gain or loss made on the transfer of CGT asset for no consideration to a 'special disability trust'.
According to the definition of a 'special disability trust' in section 995-1 of the ITAA 1997, for the exemption provided by section 118-85 to apply to the transfer of a CGT asset, the transfer must be to a 'special disability trust' within the meaning of the Social Security Act 1995.
In this case, you will not be required to include in your assessable income any capital gain you make from the transfer of the property for no consideration to a 'special disability trust' within the meaning of the Social Security Act 1995.
Question 2
Detailed reasoning
Section 112-20 of the ITAA 1997 provides that the first element of your cost base and reduced cost base of a CGT asset you acquire from another entity is it's market value (at the time of acquisition) if you did not incur expenditure to acquire it. Therefore, the cost base of the property to the SDT will be the market value at the date it is transferred.