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Edited version of your written advice
Authorisation Number: 5010050684774
Date of advice: 25 June 2018
Ruling
Subject: CGT and lump sum payment
Question
Will the taxpayer be entitled to disregard any capital gain or capital loss as a result of the receipt of the lump sum payment made to surrender the right to occupy the property located at xxxx xxxxx xxxx?
Answer
Yes
This ruling applies for the following period:
30 June 2017
The scheme commences on:
01 July 2016
Relevant facts and circumstances
Your parent purchased a property in April xxxx.
From xxxx onwards you lived in the property and paid all expenses relating to the property from this point onwards.
In xxxx you were given the right to occupy the property as your principal residence and occupied the property as such from that date.
An ownership interest in the property was transferred in xxxx for an amount which was x% of the market value of the property at that date.
In xxxx the property was sold.
You were paid an amount for the cessation of your right to occupy the premises.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-115
Income Tax Assessment Act 1997 Section 118-130
Reasons for decision
Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or a capital loss as a result of a CGT event happening
You will make a capital gain if the capital proceeds you receive from the surrender of your right to occupy are more than the asset’s cost base. You make a capital loss if those capital proceeds are less than the asset’s reduced cost base.
The cost base includes the initial cost to purchase the right to occupy as well as other costs to protect your right to occupy, including legal costs.
In your circumstances, you entered into a contractual agreement with the property owner after 20 September 1985. CGT applies to events that occur to ownership interest acquired after 20 September 1985. Your capital proceeds from the surrender of your right to occupy will be the payment you received as agreed. You make a capital gain if the capital proceeds exceed the cost base of acquiring and protecting the right to occupy you have in the dwelling.
For a dwelling that you acquire under a contract you have an ownership interest from when you have the legal right to occupy. The contract that you entered into with your parent in 20XX provided you with a right to occupy the dwelling.
Generally, if you are an individual and not a company or trust, you can ignore a capital gain or loss made from a CGT event that happens to your ownership interest in a dwelling that is your main residence.
To get the full exemption from CGT you must:
● have resided in the dwelling for the whole period you owned it
● you must not have used the dwelling to produce assessable income, and
● any land on which the dwelling is situated must be two hectares or less.
In your circumstances it is considered that you have an ownership interest because you have a right to occupy the dwelling. The dwelling has been your main residence for your entire ownership period. You are exempt from CGT for the payment received in relation to surrendering your right to occupy the dwelling that is your main residence.