Edited version of private advice

Authorisation Number: 1051780398559

Date of advice: 25 November 2020

Ruling

Subject: Capital gains tax - disposal

Question

Did you own an interest in the property for capital gains purposes just before it was sold?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your parents purchased a property (The Property) in 19XX. They purchased The Property as tenants-in-common.

Parent A died in 19XX. Probate was granted the following year. Under the terms of Parent A's Will, you and your sibling each inherited a share of Parent A's ownership interest in The Property.

Parent A's estate (The Estate) was finalised in the following year.

The Property has been available to rent or rented to arm's length's parties since the year of acquisition. Parent B has been the sole recipient of rental income and has returned this income as assessable in their personal income tax returns.

At all times since the finalisation of The Estate, Parent B has been solely responsible for the maintenance and protection of The Property and has had sole use, possession and enjoyment of it.

Title to The Property was changed following the granting of probate to include you and your sibling as tenants-in-common, with Parent B continuing to hold the remaining ownership interest.

The Property was recently sold. Prior to sale, Parent B incurred legal fees on the sale of The Property. They also recently spent money renovating The Property. On the sale of The Property, you and your sibling instructed the conveyancer to deposit the proceeds of sale of The Property into Parent B's bank account.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 subsection 103-10(1)

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 118-195(1)

Income Tax Assessment Act 1997 section 128-20

Reasons for decision

Summary

At the time of disposal of The Property, you owned an interest in The Property. As a result, on the disposal of The Property, you incurred a capital gain in proportion to your ownership interest.

Detailed reasoning

Your parents owned a property (The Property). They purchased The Property as tenants-in-common in 19XX. The Property was used as an investment property until the time of its disposal.

Parent A died in 19XX. In their Will, they bequeathed you and your sibling an interest each in The Property. This made up the entirety of Parent A's interest in The Property. You received this interest under their Will and therefore, in accordance with subsection 128-20 (1) of the Income Tax Assessment Act 1997 (ITAA 1997) you became the owner of the Capital Gains Tax (CGT) asset (your ownership interest in The Property). Your name was added to the legal title some years later, along with your sibling. Parent B remained on the title, holding their original interest.

Earlier this year, The Property was put up for sale and was sold. This sale resulted in a CGT event occurring. Under section 104-10 of the ITAA 1977, CGT event A1 happens if you dispose of a CGT asset.

Section 102-20 of the ITAA 1997 provides that you make a capital gain or loss as a result of a CGT event happening to a CGT asset in which you have an ownership interest. Therefore, when considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the asset. Generally, the owner of the property is the person or persons registered on the title, but it is possible for legal ownership to differ from beneficial ownership. In this instance, your parents purchased The Property as tenants-in-common in equal shares and were both registered on the title.

The Property was sold earlier this year. At the time of disposal of The Property, you had an ownership interest in The Property. You therefore had an ownership interest at the time of its sale. As the owner of an interest in The Property just before its sale, you are liable for any capital gain in proportion to your ownership interest.