Private ruling: Capital gains tax implications on transfer of title of property
Published: December 2014
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will you make a capital gain (or loss) on the transfer of legal title of the property to your parents, or any other entity? | A1: Yes | Q2: Will you be eligible to apply the 50% capital gains tax concession to any capital gain you may make on the transfer of title of the property? | A2: Yes

Relevant facts and circumstances: In 200X, your parents were granted a bridging visa, which granted them lawful status to stay in Australia while a decision on their applications for a more permanent visa was processed. Your parents already held temporary visas at the time. Your parents wanted to settle quickly in Australia and found the property. An application was made to the Foreign Investment Policy Division of the Treasury Department to inquire on whether the property could be purchased by your parents. The Foreign Investment Policy Division of the Treasury Department provided advice that your parents were prohibited from acquiring an interest in Australian urban land under subsection 21A(2) of the Foreign Acquisitions and Takeovers Act 1975 . The property was later acquired in your name with monies provided by your parents. All maintenance and bills relating to the property have been paid by your parents during the time that they have lived there. A few years ago your parents asked their solicitor to inquire on having the legal title of the property transferred from you to them, without you incurring capital gains tax.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 115-10 | Income Tax Assessment Act 1997 Section 115-100 | Income Tax Assessment Act 1997 Section 115-25

Reasons for decision: Detailed Reasoning - Capital gains tax (CGT): You make a capital gain or capital loss if a CGT event happens. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset (e.g. property). For example, if you sell an asset for more than you paid for it, the difference is your capital gain. You make a capital loss if your reduced cost base of your CGT asset is greater than the capital proceeds. Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) describes the most common CGT event, being CGT event A1. It states that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change in ownership occurs from you to another entity. The time of CGT event A1 is: • when a taxpayer enters into the contract for the disposal; or • if there is no contract - when the change in ownership occurs. | Detailed Reasoning - 50% CGT discount: Section 115-10 of the ITAA 1997 provides that a discount capital gain can be made by an individual. A 50% discount (section 115-100 of the ITAA 1997) may be applied to a discount capital gain realised by an individual where the asset that gave rise to the capital gain has been owned for a period of at least 12 months prior to the CGT event (section 115-25 of the ITAA 1997). | Detailed Reasoning - Application to your circumstances: The property was acquired in your name, with money provided by your parents, as you parents were prohibited from acquiring an interest in Australian urban land. It is considered that an 'interest' includes both a legal interest and an equitable interest. Therefore, it is not possible for you to have held the property on trust for them as this would confer an equitable interest in the property by your parents. Accordingly, on the acquisition of the property, the only interest held in the property is held by you. As such, any change in ownership of the property from you to your parents (or to any other entity) will result in CGT event A1 happening and you will make a capital gain (or loss) on the disposal. However, as you have held the property for over 12 months, you will be eligible to apply the 50% CGT general discount to any capital gain that you may make. Example: Capital proceeds $350,000 less cost base $150,000 Capital gain before applying discount $200,000