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Edited version of your written advice
Authorisation Number: 1051322622743
Date of advice: 20 December 2017
Ruling
Subject: Capital gains tax
Question and answer
Are there capital gains tax implications on sale of property acquired before 20 September 1985?
No.
This ruling applies for the following period:
Year ended 30 June 2018
The scheme commenced on:
1 July 2017
Relevant facts:
You are a resident of Australia.
Your family has owned various properties in overseas pre-CGT.
You inherited 50% of the properties from your parent who passed away.
The buildings were taken over by the Government and later returned.
Your remaining parent died and you inherited the other half of the properties.
There were no fees or payments of any kind required from the original owners. The title was simply recognised again in full and without any limitations.
You recently sold one of the properties and the proceeds were transferred to Australia.
Legislation
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 128-15
Reasons for decision
Generally, a capital gain is included in your taxable income if a profit is made on the disposal of an asset which was owned by a resident of Australia who acquired it after 19 September 1985 (section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997).
Section 104-10 ITAA 1997 states that CGT event A1 occurs where there is a change of ownership. The time of the event is when the contract was entered into or, where there is no contract, the time that your ownership ends. However, where there is a change of legal ownership yet the beneficial ownership does not change a disposal has not occurred.
In Taxation Ruling TR 94/29 the Commissioner states that as a general rule once a contract has been completed any subsequent dealings with the asset is a new arrangement. Therefore this would result in a new acquisition and disposal by the parties to the contract.
However, in some circumstances the contract may be considered to be void from the beginning such as in the situation of fraud. In these situations that change of ownership is taken to have never occurred.
The country A Government took over your property and merely returned it to you. The return of the property was to restore the situation to that which existed before the proprietary injustices caused by the confiscation of the property. The beneficial ownership of the property did not change as the property was rightly your parents.
Assets acquired from a deceased estate are acquired on the date of death of the deceased. Therefore, if the deceased died before 20 September 1985 the beneficiary is deemed to have acquired their interest in the asset before that date (section 128-15 of the ITAA 1997).
As such, you acquired your interest in the properties at the time of your parent’s death, being before 20 September 1985. Therefore, any capital gain you made on the disposal of the property is disregarded (subsection 104-10(5) of the ITAA 1997).