Private ruling: CGT - disposal of property
Date of advice: 20 December 2022
Published: 20 February 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will only CGT event A1 happen to you when you transfer the title of the property to Person A? | A1: Yes.

Relevant facts and circumstances: Person A was the director of a company that was incorporated late 19XX. The company had difficulties trading and Person A and their partner, Person B, became exposed to debts that the company had incurred. Due to these financial circumstances, they were not able to purchase their own home. The director is relative of Person A and Person B and agreed to assist them purchase the property. The agreement was a verbal agreement and the terms are as follows: • you would purchase the property • you would take a loan to purchase the property in full • Person A and Person B would pay all expenses associated with the property • you would transfer the property to Person A and Person B when the loan was repaid. You purchased the property in early 20XX. The Bank provided the initial loan and was included on the title. In 20XX you refinanced the loan through another Bank and they were registered on the mortgage title. The total amount owing to you was fully paid by mid-20XX. The property was used as security for business funding requirements of the director. The transfer of the property would have required the director to significantly restructure their financial arrangements at a considerable cost and inconvenience to the director. Therefore, they requested that Person A and Person B defer the transfer of the Property. Person A and Person B have occupied the property during the ownership period. Person A and Person B have not owned any other property since the property was acquired in early 20XX. Person A requested the title of the property be transferred to them and you have consented to the transfer. The transfer will be completed shortly.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-15

Reasons for decision: Summary: Subsection 102-25(1) of the Income Tax Assessment Act (ITAA 1997) provides the special rule 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. In your circumstances there are two CGT events may apply. These are CGT event A1 (section 104-10 of the ITAA 1997) and CGT event B1 (section 104-15 of the ITAA 1997). CGT event A1 occurs when you transfer your ownership interest in a CGT asset to another entity. 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(2) of the ITAA 1997 states that the time of the event is when the other entity first obtains the use and enjoyment of the asset. ATO Interpretative Decision ATO ID 2005/216 I ncome Tax Capital gains tax: CGT event B1: right to use property before title passes states that, in order 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. | Detailed Reasoning - Application to you circumstances: In your case, at the time the use and enjoyment of the property was to be transferred to Person A and Person B, you did not transfer all of the use and enjoyment of the property. The director has used the property as security for their own purposes and have retained use and enjoyment. The loan being repaid was the 'specific event' that the agreement determined as the point at which the title was to be transferred to Person A and Person B. There was no specific period outlined in the agreement. The loan was repaid by mid-20XX and the transfer has not taken place. Therefore, the end point of the agreement, i.e. when the loan was repaid, has occurred, and the title has not been transferred. There are two reasons provided for the delay in the title being transferred, which are: 1. the property was being used by the director as security 2. you are waiting on a private ruling confirming that there will be no adverse CGT consequences if the property is transferred. The use of the property as security and the delay caused in the transfer of the title was not included in the terms of the original arrangement. There was also no qualification or rider in the agreement that the transfer is conditional on there being no adverse CGT consequences. The changing of conditions of the agreement supports that the agreement has the character of a loose family arrangement as per ATO ID 2005/216, rather than an agreement for the purposes of CGT event B1. The agreement between you and Person A and Person B did not meet the requirements under section 104-15 of the ITAA 1997, namely the specific event occurred without the transfer of the property, you retained the use and enjoyment of the property and the agreement was a loose family arrangement. Therefore, we consider that a CGT event B1 did not occur when you transferred the use and enjoyment of the property to Person A and Person B. When you transfer legal title of the property to Person A, this will constitute a CGT event A1 only. It will occur at the time you transfer your ownership interest. You will need to consider any capital gains received on the disposal of the property.