Private ruling: Capital gains tax
Published: February 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Questions and answers: | 1. Did a CGT event happen when you disposed of your interest in the property? | Yes. | 2, Are you required to include any capital gain or capital loss in your income tax return in the year ended 30 June 2011? | Yes. | 3. Does the market value substitution rule apply? | Yes.

Relevant facts and circumstances: A number of years ago, your relative entered into a contract to purchase a property subject to finance. Your name was included on the title as join proprietor with your relative, so that they could obtain finance. You did not provide any consideration for the purchase of the property. You never lived in the property. There is no written agreement between you and your relative in regards to this arrangement. In the income year ended 30 June 2011 you disposed of your interest in the property so that your relative was the sole proprietor of the property. Your relative did not pay you any money for giving up your interest of the property.

Relevant legislative provisions: Section 104-10 of the Income Tax Assessment Act 1997 . | Section 112-20 of the Income Tax Assessment Act 1997 .

Reasons for decision: Summary: A taxpayer makes a capital gain or capital loss only when a capital gains tax (CGT) event happens. The most common CGT event that happens to real estate is its sale or disposal, which is CGT event A1. The date of the CGT event is when the taxpayer enters into the contract for the sale of the property, not the settlement date. In your case, CGT event A1 happened when you disposed of your interest in the property. The date of the CGT event was when you entered into the contract to dispose of that interest, which was in the year ended 30 June 2011. You are not eligible for any exemptions from CGT. Any capital gain or capital loss that you made from the disposal must be included in your 2011 income tax return. | Detailed Reasoning - Market value substitution rule: If you receive nothing in exchange for a CGT asset (for example, if you give it away as a gift), you are taken to have received the market value of the asset at the time of the CGT event. This is known as the market value substitution rule for capital proceeds. In your case the market value substitution rule will apply as you gave your relative your share in the property as a gift and received nothing in exchange for it.

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