Edited version of private advice

Authorisation Number: 1052233309492

Date of advice: 20 March 2024

Ruling

Subject: CGT - sale of property

Question

Is the sale of the property a disposal within the exception provided for by subsection 104-15(4) of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You married your spouse a number of decades ago.

At that time your spouse was a returned veteran.

After their discharge from the armed forces your spouse became entitled to a war service home.

They acquired the property and settled on the purchase in the year after they become entitled to the property.

Several years later, your spouse entered into a contract for the construction of a dwelling on the land which was completed shortly after.

You and your spouse occupied the property as your principal place of residence until your spouse's.

You became entitled to be registered as the proprietor of the property as the sole beneficiary of your spouse's estate.

The registration took place a number of years ago.

You continued to occupy the property as your main residence until you moved into a retirement home a couple of years after registration took place.

The property was first rented when you moved to the retirement home and remained rented until settlement for the sale.

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

There is a special rule in the CGT provisions which provides that if more than one CGT event can apply in a particular situation, the event you use is the one that is most specific to your situation: subsection 102-25(1) of the ITAA 1997.

There are two CGT events which may apply in these circumstances. These events are CGT event A1 in section 104-10 of the ITAA 1997 and CGT event B1 in section 104-15 of the ITAA 1997.

CGT event A1 happens if you dispose of a CGT asset. 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 ITAA 1997.

For CGT event B1 to happen, the relevant agreement must be one under which title will or may pass at the end of a specific period or on the occurrence of a specific event. CGT event B1 will not happen if, under a loose family arrangement, title to an asset may pass at an unspecified time in the future (see Taxation Determination

TD 1999/78 and ATO Interpretive Decision ATO ID 2005/216).

In this case, although you married your spouse and lived in the property as your main residence and the title passed to you on his death, the will your spouse made can be described as a loose agreement as there was no specific date as to when your spouse was going to pass away, no mention of use and enjoyment of the property passing to you and no specific mention of the property itself.

The situation outlined above does not give rise to an agreement for the purposes of CGT event B1.

In any event, the correct time for applying CGT event B1 was when your spouse passed away and title to the property devolved to you under the will.

You acquired the property on the date your spouse passed away at its market value.

You lived in the property as your main residence until you went into care.

You commenced renting the property until it was sold.

You can use the absence rule in section 118-145 of the ITAA 1997 to treat the property as your main residence for up to 6 years while it is being rented out.

From the end of the absence period until the property was sold you will be subject to CGT.

It is for these reasons that you are not able to disregard the CGT that arose when you sold the property.