Private ruling: Capital gains tax
Published: February 2015
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022 | Year ended 30 June 2023 | Year ended 30 June 2024 | Year ended 30 June 2025
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the property considered a pre capital gains tax (CGT) asset even though the transfer of ownership occurred after 20 September 1985? | A1: No.

Relevant facts and circumstances: Prior to September 1985, your relatives agreed to transfer a property at no cost to you and your spouse. The agreement was verbal. There was no written agreement between you, your spouse and your relatives in relation to the transfer of the property. At this time, you and your spouse applied for a loan with the Bank for the construction of a home on the land. This loan was approved with the expectation that the land would be transferred at a later date. After September 1985 the title to the property was transferred from your relatives to you and your spouse.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10(5) | Income Tax Assessment Act 1997 section 109-5

Reasons for decision: Summary: Under paragraph 104-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997), a capital gain or loss you make is disregarded if you acquired the asset before 20 September 1985. Generally you acquire a CGT asset when you become its owner as per section 109-5 of the ITAA 1997. Subsection 109-5(2) of the ITAA 1997 sets out specific rules for the circumstances in which, and the time at which you acquire a CGT asset as a result of a CGT event occurring. CGT event A1 occurs when an entity disposes of a CGT asset to you. You acquire the asset at the time that the contract is entered into or, if there is no contract, when the entity stops being the asset's owner. In McDonald & Anor v. FC of T 2001 ATC 4146 it was found that the time of the contract was at the time when a binding and enforceable contract was in place. It was found that an oral agreement was insufficient to bind each of the parties to the agreement. It went on to specify that the procedure for exchange of contracts was so entrenched that a party contending for an intention to precede other than in accordance with established procedure, would need clear evidence to support that contention. In this case, the absence of any written contract or agreement between the parties has led to the conclusion that no binding and enforceable agreement occurred between you, your spouse and your relatives. An expression of an intention to gift or donate property to another party does not give rise to a contract between the donor and the intended recipients. Therefore, you and your spouse will have acquired the asset at the time you became the legal owner of the property. This will be the point in time that the title was transferred into your names which occurred after September 1985. Any future capital gain or loss made by in respect of the property cannot be disregarded in accordance with paragraph 104-10(5)(a) of the ITAA 1997 as it was acquired after 20 September 1985.