Edited version of private advice

Authorisation Number: 1051716149364

Date of advice: 21 September 2020

Ruling

Subject: Capital gains tax

Question

Is the capital gain pursuant to capital gains tax (CGT) event A1 under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) on the sale of Property A and Property B nil?

Answer

Yes.

A capital gain will be made as a result of CGT event A1 happening if the capital proceeds from the event are more than the asset's cost base. Pursuant to subsection 116- 20(1) of the ITAA 1997, the capital proceeds for the event are the total of the money you receive, or are entitled to receive, in respect of the event happening and the market value of any other property you receive, or are entitled to receive, in respect of the event happening.

Under the general cost base and reduced cost base rules covered under subsections 110-25(2) and 110-55(2) of the ITAA 1997, the first element of the cost base and reduced cost base of an asset is the sum of the amount paid (or required to be paid) and the market value of the property given (or required to be given) in respect of acquiring it.

As you undertook an obligation as trustees to pay the net proceeds of the sale to the former owners of the properties, your payment of the net proceeds to them will be your cost of acquisition ('the money you are required to pay') for the purposes of subsections 110-25(2) and 110-55(2) of the ITAA 1997.

As the proceeds from the sale of the properties will be identical to your cost of acquiring them, there will be no capital gain.

This ruling applies for the following period:

Year ending 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

Originally Property A and Property B were owned by the deceased and the spouse as tenants in common. The deceased and the spouse owned the properties since 19XX and acquired them for the purpose of operating them as boarding houses.

The deceased passed away on xx April 20xx.

The Executor was appointed under the deceased's Will and a Grant of Probate was issued to the Executor on xx July 20xx by the Supreme Court.

The Executor could not sell Property A and Property B without the consent of the deceased's spouse who owned the properties with the deceased as a tenant in common.

A dispute between the Executor and the deceased's spouse resulted in a stalemate between the parties and the properties were unable to be sold.

In consequence of the dispute between the Executor and the deceased's spouse an application was filed with the Supreme Court seeking the appointment of trustees for sale.

On x November 20xx, a hearing took place at the Supreme Court for the purpose of appointing statutory trustees for sale.

Statutory Trustees for sale of the properties were appointed.

On xx February 20xx, the Trustees became registered as the proprietors of the properties.

On xx March 20xx, in order to have Property A and Property B ready for sale, the properties ceased operating as boarding houses and were vacated. No revenue has been received from that date.

A contract was exchanged for the sale of the both properties on xx June 20xx. The properties were sold with vacant possession. Settlement on the sale of the properties was due on xx September 20xx.

The beneficial owners of the properties, Executor of the decease's Estate and deceased's spouse, were and are not registered for GST in relation to the ownership of the properties.

The Trustees were and are not registered for GST.

There are no and have not been other joint activities between the Executor and deceased's spouse (for example, the ownership of any other property or any other joint enterprise).

There are no and have not been other joint activities between the Trustees (for example, the ownership of any other property or any other joint enterprise).

The fees payable to the Trustees will be less than $XXX in total.

Relevant legislative provisions

Section 104-10 of the Income Tax Assessment Act 1997

Subsection 110-25(2) of the Income Tax Assessment Act 1997

Subsection 110-55(2) of the Income Tax Assessment Act 1997