Edited version of private advice

Authorisation Number: 1052234677740

Date of advice: 28 March 2024

Ruling

Subject: Capital gains tax

Question 1

Do the entire blocks of land retain their pre-CGT status?

Answer

No.

Question 2

Do the deceased's original interests in the blocks of land retain their pre-CGT status?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The deceased and their spouse purchased a single parcel of land as joint tenants.

Some Lots were used by the deceased as their main residence and was treated by the local council as one parcel of land.

A number of years after the purchase a subdivision of the land was commenced and was split into several Lots.

A number of Lots were sold over an extended period of time.

The original parcel of land was acquired with a dwelling which was part of the subdivision. This house was the main residence of the deceased and their spouse for several years starting from the date of purchase.

Several years after the purchase a separate dwelling was built and became the deceased's and their spouse's main residence on land post subdivision.

The other lots are vacant land.

The deceased's spouse passed away a number of years ago.

The deceased's spouse's share of the blocks transferred to the deceased.

The blocks of land were then held 100% by the deceased.

The deceased passed away a few years ago.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 108-7

Income Tax Assessment Act 1997 section 128-50

Reasons for decision

The most common capital gains tax (CGT) event (CGT event A1) happens if you dispose of a CGT asset. The time of the event is when you enter the contract for the disposal or if there is no contract when the change of ownership occurs.

Subdivision is not a CGT event. At the time of subdivision each subdivided block will retain the original acquisition date. However, if there is a change of ownership interests at the time of the subdivision, there will be CGT implications.

Section 108-7 of the Income Tax Assessment Act 1997 (ITAA1997) provides that individuals who own a Capital Gains Tax (CGT) asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant-in-common. Essentially this means that where an asset is owned by persons as joint tenants, CGT will apply as if the one CGT asset was owned by persons as tenants-in-common in equal shares.

Section 128-50 of the ITAA 1997 applies when a joint tenant dies and the other becomes the owner of their interest by survivorship. The survivor acquires the deceased's interest on the date of death and at market value if the deceased held it as a pre-CGT asset.

The deceased and their spouse owned the blocks as joint tenants. This means that when the deceased's spouse passed away, the deceased acquired their spouse's share of the blocks through survivorship.

In the deceased's hands the interest previously belonging to their spouse is not a pre-CGT asset as they became the owner after 20 September 1985 of the spouse's share of the blocks.

Only the deceased's original interests in the blocks remain pre-CGT assets. The interests acquired after the death of their spouse are post CGT assets.