Private ruling: Capital gains tax and the sale of property
Published: January 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Questions and answers | 1. Is the sale of the property subject to capital gains tax (CGT)? | Yes. | 2. If so, would the land and the house need to be considered separate assets for the purpose of determining the cost base? | No. | 3. Is any main residence exemption available? | No.

Relevant facts and circumstances: Your ancestors acquired a piece of bushland in the late 1800s. Your parent inherited an interest in this land in and arranged to leave their interest in the land to you in their Will. Your parent allowed you to start building a house on the land some time after 20 September 1985. Some time later you moved into the house with your spouse and children and continued building the house until its completion. You incurred costs constructing the house. Your marriage broke down several years later. You paid your estranged spouse half of the building costs of the house. You continued to live in the house with your children for a period of time. You remarried and you moved into your new spouse's home. Some time later you and your new spouse purchased a property together. The property became you and your spouse's main residence. You commenced renting your original house to tenants some time later. It continued to be rented for a period of time. You collected all the rental income during the time it was rented out. You undertook legal action to remove the tenants as they had caused considerable damage to the house. Following this one of your children moved into the house. Some time later you, your parent and your sibling entered into a deed of arrangement. Under the deed of arrangement all of your parents land was transferred to your sibling. Your sibling was required to immediately subdivide the land under your house into a certain sized block and transfer the land to you. Your sibling did not complete the subdivision and you took legal action against them to make them subdivide the land and to ensure that the size of the land was the size that was agreed upon. Your parent passed away some time later. You have provided a copy of a letter from your solicitor dated some years after the deed of arrangement was entered into that indicates that the subdivision still had not occurred as at that date. Your sibling eventually subdivided the land and the block was transferred to you. Some time later, you sold the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10, | Income Tax Assessment Act 1997 Section 109-5, | Income Tax Assessment Act 1997 Section 112-20, | Income Tax Assessment Act 1997 Section 112-25 and | Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision: Summary: Generally, a property is considered to be legally and beneficially owned by the person/s registered on the title. In your situation you did not obtain title to the property until your sibling transferred the subdivided land to you. Therefore you did not acquire the property, for CGT purposes, until the date that your sibling transferred the property to you. You have provided a copy of a solicitors letter dated some years after the deed of arrangement was entered into that indicates that the subdivision and transfer had not occurred at that point in time. This means that you did not acquire the property until some time after this date. As you did not acquire the property until some time after this date and the house was already on the land when you acquired it, it is not necessary to separate the assets for the purpose of determining the cost base of the property. Where you do not pay anything to acquire a property, the first element of the cost base and reduced cost base is the market value of the property on the date of acquisition. In your case you did not pay anything to acquire the property. Therefore the first element of the cost base of your asset will be the market value of the property on the date that your sibling transferred it to you. As you did not move into the property any time after you acquired it, you will not be entitled to any main residence exemption.

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