Edited version of private advice

Authorisation Number: 1051955079992

Date of advice: 24 February 2022

Ruling

Subject: CGT- ownership interest in a property

Question 1

Did Individual X hold a one third ownership interest in the Property for income tax purposes?

Answer

Yes. Individual X had an ownership interest in the Property equal to one third. Therefore, one third of the proceeds of the sale should be attributed to Individual X (as outlined by the executed deeds and actions undertaken by the parties) and considered under the Capital Gain tax provisions.

Question 2

Did Individual X dispose of a one third interest in the property under section 104-10 of the ITAA 1997?

Answer

Yes. Individual X has disposed of a one third ownership interest in the Property. A1 CGT event has occurred when the one third equitable interest changed owners from Individual X to the third party (Section 104-10 Income Tax Assessment Act 1997)

Question 3

Is Individual X eligible for the main residence exemption under section 118-110 of the ITAA 1997 upon the sale of their one third interest in the property?

Answer

Yes. The Property was Individual X's main residence during the ownership period and any capital gain on the sale of Individual X's one third interest can be disregarded (Section 118-110 of the Income Tax Assessment Act 1997).

This ruling applies for the following periods:

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

A property (the Property) was acquired. The Company held title of the Property during the entire period of ownership.

Individual X and their late spouse had contributed one third of the purchase price for the property, as well as the majority of the ongoing costs throughout the ownership period.

The Company contributed the other two thirds of the purchase price.

The Company was required to mortgage the Property to obtain the finance required for its two thirds interest, for simplicity, the Property was registered in the name of the Company.

The Company's two thirds contribution to the purchase price was arranged by the Company's director at the time, who was the child of Individual X and their late spouse.

The following conditions formed part of the agreement in relation to the Property at or around the time of purchase, between the director (on behalf of the Company), Individual X, and her late spouse:

•         Individual X and their late spouse would occupy the Property exclusively as their main residence as long as they wished.

•         The title of the Property would be in the name of the Company, with a one third beneficial ownership interest remaining with Individual X and their late spouse.

•         No rent would be charged to Individual X and their late spouse whilst they occupied the Property in recognition of their interest in the property.

•         Individual X and their late spouse would attend to all aspects of managing the Property during the period of ownership, including payment of all holding and occupancy costs.

•         Individual X and their late spouse would be the sole representatives for the parties in matters relating to the body corporate and be responsible for all day-to-day decisions for the running of the Property.

•         The Company would pay all interest incurred on its borrowings for the Property purchase.

Individual X and their late spouse lived together in the property until the spouse passed away. Individual X continued to live at the property exclusively over an extended period.

The director of the Company who arranged the purchase has recently passed away.

The Company has recently appointed a new sole director.

The Company and Individual X agreed recently to sell the Property. Individual X relocated to a smaller property so that the Property could be prepared for sale.

The Property has now been sold and settled with Individual X receiving one third of the settlement proceeds.

Relevant legislative provisions

Income Tax Assessment Act section 104-10

Income Tax Assessment Act section 108-5 of the ITAA 1997

Income Tax Assessment Act section 118-110 of the ITAA 1997

Income Tax Assessment Act section 118-130 of the ITAA 1997

Income Tax Assessment Act section 995-1 of the ITAA 1997