Private ruling: Capital Gains Tax
Date of advice: 28 July 2025
Published: 29 September 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you required to include capital gains in your assessable income on the transfer of part of your share of the property to your child? | A1: Yes | Q2: Can you apply the 50% discount to the capital gain on the transfer of part of your share of the property to your child? | A2: Yes | Q3: How is the cost base determined? | A3: Information about calculating the cost base can be found by searching ato.gov.au for 'QC66022'

Relevant facts and circumstances: In approximately 19XX, you purchased a property with Person A as tenants in common. Your share was XX% The Property's land area is less than 2 hectares. The property was never your principal place of residence. The property was used to produce income from XX 19XX to XX 20XX. The property was never vacant. In XX 20XX, your child moved into the property. They never paid rent during the time that they lived there. In XX 20XX, your child acquired a XX% ownership in the property. In XX 20XX, you gifted part of your share in the property to your child. No money was exchanged on the transfer.

Relevant legislative provisions: Income Tax Assessment Act 1997 section102-5 | Income Tax Assessment Act 1997 section102-20 | Income Tax Assessment Act 1997 section104-10 | Income Tax Assessment Act 1997 section110-25 | Income Tax Assessment Act 1997 section116-20 | Income Tax Assessment Act 1997 section116-30

Reasons for decision: Summary: You are required to include capital gains in your assessable income in relation to the transfer of the property to your child. You use the market value of the property to calculate your CGT. | Detailed Reasoning - Detailed reasoning: Your net capital gain is included in your assessable income by section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Your net capital gain is calculated by subtracting any capital losses that you may have accrued from your capital gains made in that income year. Section 102-20 of the ITAA 1997 provides that a capital gain or capital loss results from a capital gains tax (CGT) event occurring. Subsection 104-10(1) of the ITAA 1997 provides that CGT event A1 happens if an entity disposes of a CGT asset. A 'disposal', as defined in subsection 104-10(2) of the ITAA 1997, occurs when there is a change of ownership from one entity to another. A 'CGT asset', as provided in section 108-5 of the ITAA 1997, is: • any kind of property, or • a legal or equitable right that is not property. Under subsection 116-20(1) of the ITAA 1997, your capital proceeds from a CGT event include the total of the money you have received, or are entitled to receive, in respect of a CGT event happening. Where on the disposal of an asset no money or property is received, the market value substitution rule contained in section 116-30 of the ITAA 1997 generally applies, such that you are taken to have received the market value of your ownership interest in the property at the time the CGT event occurs. If you sell, transfer or gift property to family or friends for less than it is worth, you'll be treated as if you received the market value of the property for CGT purposes. You use the market value of a property to calculate your CGT if both of the following are true: • what you received was more or less than the market value of the property • you and the new owner were not dealing with each other at arm's length. This is called the 'market value substitution' rule. | Detailed Reasoning - Application to your situation: In your case, you've maintained an ownership interest in the property that was purchased in 19XX. You and Person A were registered on the property title as tenants in common. The property was not your main residence at any time. In XX 20XX you transferred part of your share of the title to your child. As your child acquired the property from you for no consideration, the market value substitution rule will apply to modify the first element of the cost base of the property. When calculating the capital gain or loss associated with the disposal of the property the capital proceeds will be the market value of that property on the day the CGT event occurs (the transfer date). The first element of the cost base will be the market value of the property at the time you acquired it. | Detailed Reasoning - Question 2: Can you apply the 50% discount to the capital gain on the transfer of part of your share of the property to your child as per section 115-125 of the ITAA 1997? | Summary: Yes. | Detailed Reasoning - Detailed reasoning: For an asset to qualify for the CGT discount you must own it for at least 12 months before the CGT event happens. The CGT event is the point at which you make a capital gain or loss. You exclude the day of acquisition and the day of the CGT event when working out if you owned the CGT asset for at least 12 months before the CGT event happens. | Detailed Reasoning - Question 3: How is the cost base determined? | Summary: Information about calculating the cost base can be found by searching ato.gov.au for 'QC66022'. | Detailed Reasoning - Detailed reasoning: In accordance with section 110-25 ITAA 1997, you can work out the cost base of a CGT asset by adding these 5 elements: (1) Money paid or property given for the CGT asset (2) Incidental costs of acquiring the CGT asset or that relate to the CGT event (3) Costs of owning the CGT asset (4) Capital costs to increase or preserve the value of your asset or to install or move it (5) Capital costs of preserving or defending your title or rights to your CGT asset Do not include any costs for which a tax deduction was claimed. For example, don't include the cost of capital works for which you can claim a deduction. Further information about calculating the cost base can be found by searching ato.gov.au for 'QC66022'.

Question 1: Are you required to include capital gains in your assessable income in relation to the transfer of property to your child?