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Edited version of your written advice
Authorisation Number: 1013105367963
Ruling
Subject: CGT event B1
Question
Did capital gains tax (CGT) event B1 happen to the property at any time prior to the sale to a third party?
Answer
No.
This ruling applies for the following period
Year ended 30 June 20YY
The scheme commences on
1 July 20XY
Relevant facts and circumstances
You purchased a residential property in 200X. The property was sold in 20XY to an unrelated third party for a capital gain.
You never permanently resided at the address. However a relative lived there who paid for the utility services and general maintenance expenses for the property.
You paid the loan interest and capital repayments.
There was no written agreement between you and your relative regarding the property.
The title of the property never transferred into your relative's name prior to selling it to the unrelated third party.
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
The disposal of a CGT asset normally triggers CGT event A1 as the title to the asset is transferred from one entity to another entity (the second entity).
However, in certain circumstances the use and enjoyment of the asset may pass to the second entity before the title legally passes to them. For example, the two entities may enter into an instalment payment arrangement for the purchase of a property where the title will transferred to the acquiring entity until the full purchase price has been fully paid but that entity may use the asset for its' own benefit. This is known as CGT event B1.
CGT event B1 happens if you enter into an agreement with another entity under which:
• 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 Income Tax Assessment Act 1997 (ITAA 1997)).
The timing for CGT event B1 is when the use of the CGT asset passes.
The effect of CGT event B1 is that any capital gain or loss from the disposal of the asset is calculated and declared at the time the agreement is entered into and not when the title passes to the second entity.
If the title does not pass to the second entity, the capital gain or loss is disregarded. You are considered to have been the owner of the property during the time the second entity had use and enjoyment of the property. The acquisition date of the property is the original acquisition date.
In your case, you purchased a property which was used by your relative as their residence until the property was disposed of.
Whilst your relative used the property as their residence, it is considered that CGT event B1 has not happened during the period you owned the property as the title of the property was not transferred into their name at any stage.
It is considered that CGT event A1 occurred when you sold the property to a third party in 20XY.