Private ruling: Capital gains tax
Published: November 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1993

Ruling: Q1: Are you entitled to disregard any capital gain or loss that results from the transfer of ownership of property from you and your spouse to your daughter? | A1: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You purchased a property in 199X. You bought the property with the intention to gift it to your child upon their marriage. Your child is getting married in a later financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 109-5. | Income Tax Assessment Act 1997 Section 116-20. | Income Tax Assessment Act 1997 Section 112-20. | Income Tax Assessment Act 1997 Section 100-45.

Reasons for decision: Detailed Reasoning - Acquisition: Section 109-5 of the Income Tax Assessment Act 1997 (ITAA 1997) explains that you become the owner of a CGT asset when you acquire it, and in the case of a real estate transaction, you acquire an asset when you enter into a contact of purchase. | Detailed Reasoning - Capital proceeds: Section 116-20 of the ITAA 1997 explains that capital proceeds is the term used to describe the amount of money or the value of any property you received or are entitled to receive as a result of a CGT event happening to a CGT asset that you own. You make a capital gain if your capital proceeds from the sale of your CGT asset are greater than your cost base for the purchase of that asset, for example, if you received more for an asset than you paid for it. You make a capital loss if your reduced cost base for the purchase of that asset is greater than your capital proceeds resultant from the sale of that asset. | Detailed Reasoning - Market value substitution rule: Section 112-20 of the ITAA 1997 provides that in some cases 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. The market value substitution rule, broadly, is when the proceeds are replaced with the market value of the asset worked out at the time of the event. | Detailed Reasoning - Application of the law to your situation: In your case, you purchased your ownership interest in the property in 199X. The date that you entered into the contract to purchase your ownership interest in the property is the date that you are considered to have acquired your ownership interest in the property. You intend to gift the property to your child. As you will receive no proceeds from the disposal of the property, you are taken to receive the market value of the property at the date you gift it. Therefore, the capital gain on the property must be calculated in accordance with the normal rules as set out in Section 100-45 of the ITAA 1997: 1) Work out your capital proceeds (from when the CGT event occurs). 2) Work out the cost base for the CGT asset (from when you acquired the asset and any other costs that you may include as an element of your cost base). 3) Subtract the cost base from your capital proceeds. 4) If the proceeds exceed your cost base, the difference is your capital gain.