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Edited version of your private ruling
Authorisation Number: 1012621830273
Ruling
Subject: Capital gains tax - disposal - B1 or A1
Question 1
Did a capital gains tax event B1 occur when you vacated the property several years ago?
Answer
No.
Question 2
Did a capital gains tax event B1 occur when you entered into the agreement that title to the property will pass to another entity after a specified event has taken place?
Answer
No.
Question 3
Will a capital gains event A1 occur on the transfer of the title from you to another entity?
Answer:
Yes.
This ruling applies for the following period
Year ended 30 June 2014
Year ended 30 June 2011
Year ended 30 June 2005
The scheme commenced on
1 June 1999
Relevant facts and circumstances
Your sibling signed and registered a memorandum of transfer of a property (the property) to you in excess of ten years ago. The property remains registered in the Land Titles Registry in your name as registered proprietor.
You paid the costs and stamp duty on the contract and the memorandum of transfer was registered. You were reimbursed the stamp duty and costs.
Your sibling maintains there was no intention to transfer the equitable ownership of the property and intended you to have only bare legal title which was to be transferred back to your sibling upon request.
Your sibling maintains that all times you held the property in trust.
Prior to the transfer your sibling was the registered proprietor of the property in fee simple, subject to a commercial mortgage. The loan money was applied A% to your sibling and B% to you.
Your sibling occupied part of the property as owner and you occupied a part of the property as tenant.
No consideration or any other monies in relation to the transfer were ever paid by you.
You are willing to sign and provide your sibling with a memorandum of transfer of the property without receiving any money in consideration.
Upon signing the initial transfer, you ceased paying rent to your sibling but commenced paying all the mortgage and interest costs on the loan. You also paid for maintenance of that part of the property you occupied and paid rates and land tax on the whole property until one month before you vacated the property.
After you vacated the property your sibling has occupied, maintained and paid outgoings on the property since that date.
Your sibling is now requesting that you transfer the title of the property back.
A few years ago a deed of settlement was drawn up after protracted legal action between you and your sibling over ownership of a property.
The deed set out a course of action to return the title of the property to your sibling following the issue of a private binding ruling covering the question of the existence of a trust.
The private binding ruling issued where it was declared that the property was not held in trust and capital gains tax (CGT) event A1 would take place on the transfer of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 102-25
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 104-15
Reasons for decision
Summary
The required conditions for a capital gains tax (CGT) event B1 have not been met and a CGT event A1 will occur on the transfer of the property to the other entity.
Detailed reasoning
All references are to the Income Tax Assessment Act 1997.
There is a special rule in the CGT provisions which provides that if more than one CGT event can apply in a particular situation, the event you use is the one that is most specific to your situation. (Subsection 102-25(1).)
There are two CGT events which may apply in these circumstances. These events are CGT event A1 in section 104-10 and CGT event B1 in section 104-15.
CGT event A1 happens if you dispose of a CGT asset. CGT event B1 happens if you enter into an agreement with another entity and, under that agreement:
• the right to the use and enjoyment of a CGT asset you own passes to another entity; and
• title in the asset will or may pass to the other entity at or before the end of the agreement: subsection 104-15(1) of the ITAA 1997.
In order for CGT event B1 to happen the relevant agreement must be one under which title will or may pass at the end of a specific period or on the occurrence of a specific event. CGT event B1 will not happen if, under a loose family arrangement, title to an asset may pass at an unspecified time in the future.
At the time you vacated the property, there was no agreement in place between you and the other entity that specified the right to the use and enjoyment of the property was being handed over. You have provided several pieces of correspondence from each party's lawyers that discuss an 'understanding' that the property would be transferred back to the other entity. However, as outlined above, 'a loose family arrangement' will not affect a CGT event B1.
The deed of settlement that was agreed, signed and entered into force does not mention the right to the use and enjoyment of the property had passed or would pass before the legal transfer. This document explains the method by which transfer of the property will be enacted.