Private ruling: Timing of CGT event
Published: March 2015
Ruling period: Period ending 30 June 2015
Date scheme commenced: 1 July 2011

Ruling: Question and Answer | Is there a CGT event when the property's title is transferred from you to individual B? | No.

Relevant facts and circumstances: You funded the purchase of land in early 20XX. The choice of land was made by Individual B. You funded the construction of residential premises on this land that commenced within months of the purchase and was completed within 6 months. Individual B decided the design of the residential premises, and all building discussions were held between Individual B and the builder. A Memorandum of Understanding (MOU) was signed around the same time the building contact was signed. The MOU included the following conditions: • You agree to grant Individual B a right to occupy the Property as his/her primary residence upon completion of the construction of the residential premises. • In consideration of you granting Individual B the right to occupy the Property, Individual B agrees to pay any loan repayments payable by you that relate to the loan, as well as any rates, taxes, charges, insurances, repairs maintenance, or other similar outgoings and any interest payable on any part of them with respect to the Property. • You agree to transfer the Property to Individual B absolutely at a time determined by agreement between the parties or in the absence of the agreement, upon your death. Individual B and their family moved into the property soon after completion. You have agreed to transfer the Property to Individual B. Individual B will pay out your mortgage. No other money is changing hands.

Relevant legislative provisions: Income Tax Assessment Act 1997 102-25(1), | Income Tax Assessment Act 1997 104-10, | Income Tax Assessment Act 1997 104-15 and | Income Tax Assessment Act 1997 104-15(1). Reason s for decision | There is a special rule in the CGT provisions which provides 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: subsection 102-25(1) of the ITAA 1997. | There are two CGT events which may apply in these circumstances. These events are CGT event A1 in section 104-10 of the ITAA 1997 and CGT event B1 in section 104-15 of the ITAA 1997. | CGT event A1 happens if you dispose of a CGT asset. 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(1) of the ITAA 1997. | 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. | In this case, you entered into a formal agreement with Individual B to grant them the right to use and enjoy the property. Under the agreement, title to the property would pass to Individual B on a date agreed between the parties or in the absence of agreement, upon your death. In these circumstances, CGT event B1 happened when the MOU was signed by both parties. As CGT event B1 happened when Individual B was granted the right to use and enjoy the property, there will be no CGT consequences for you when the title to the property is ultimately transferred to Individual B.

Reasons for decision: Summary: There is a special rule in the CGT provisions which provides 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: subsection 102-25(1) of the ITAA 1997. There are two CGT events which may apply in these circumstances. These events are CGT event A1 in section 104-10 of the ITAA 1997 and CGT event B1 in section 104-15 of the ITAA 1997. CGT event A1 happens if you dispose of a CGT asset. 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(1) of the ITAA 1997. 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. In this case, you entered into a formal agreement with Individual B to grant them the right to use and enjoy the property. Under the agreement, title to the property would pass to Individual B on a date agreed between the parties or in the absence of agreement, upon your death. In these circumstances, CGT event B1 happened when the MOU was signed by both parties. As CGT event B1 happened when Individual B was granted the right to use and enjoy the property, there will be no CGT consequences for you when the title to the property is ultimately transferred to Individual B.