Private ruling: Acquisition date
Date of advice: 24 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will you be able to disregard any capital gain made on the disposal of the dwelling? | A1: Yes.

Relevant facts and circumstances: You were overseas when your parents purchased a property (the Dwelling). The Dwelling was always going to the transferred to you from your parents. Your parent’s accountant advised them of the capital gains tax (CGT) legislation being introduced on 20 September 1985. Your parents decided to transfer the Dwelling before the legislation was introduced. You were out of the country and returned to Australia just before 20 September 1985. Before 20 September 1985 you were taken to your parent’s solicitor and signed all the related documents to affect a transfer of the Dwelling into your name. The documents were left with the Solicitor to lodge with the relevant authority before the new CGT legislation was introduced. You believed the transfer of the Dwelling from your parents into your name would be processed in time. Your returned overseas one month after 20 September 1985. You and your parents left all documentation relating the transfer of the Dwelling from your parents to you with the Solicitor. A number of years later the Solicitor passed away. No documentation regarding the transfer of the Dwelling can be located. Searches carried out show the Dwelling was not transferred to you until some months after 20 September 1985. You intend to sell the dwelling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Subsection 104-10 | Income Tax Assessment Act 1997 Subsection 109-5

Reasons for decision: Detailed Reasoning - Capital gains tax: You may make a capital gain when a capital gains tax (CGT) event happens to a CGT asset. The most common CGT event is CGT A1 which happens when you dispose of your ownership interest in a CGT asset to another entity. When a CGT asset is disposed of as a result of CGT event A1, the time of the event is when a contract for the disposal of the CGT asset occurs, or if there is no contract, when a change of ownership occurs. A person acquiring a CGT asset as a result of a CGT event A1 is taken to have acquired the CGT asset when the disposal contract is entered into, or if none, when the entity disposing of the CGT asset stops being the asset’s owner. Generally, CGT assets acquired before 20 September 1985 are exempt from CGT, and any capital gain made on the disposal of pre-CGT assets can be disregarded. | Detailed Reasoning - Date of contract: A contract is required only to have the attributes prescribed by common law for the formation of a contract. Briefly, a binding contract is generally entered into where one party communicates unconditional acceptance of an offer made by the other party. In some cases difficulty may arise in determining at what point of time a binding contract is made. This could be particularly so in the case of a contract that is wholly or partly oral. Thus, a contract may be an oral contract and the date for such a contract would be the date ascribed to it at common law. This would mean that the contract in question might be unenforceable, or even illegal, at the time of its making. But if it was carried into effect with the consequent disposition of an asset, then the relevant time of the making of the contract was when the unenforceable contract was made. If the asset is disposed of under a contract, the time of CGT event A1 is when the taxpayer enters into the contract. For this purpose, a contract may be an oral contract, provided it has the attributes required by common law, e.g. an intention by both parties to be bound by it. A number of cases have considered the date when a contract was formed. In Gardiner v FC of T 2000 ATC 2018, the AAT held that a property was acquired when a taxpayer's offer was accepted by the vendor, not when the contracts were formally exchanged two months later. In McDonald & Anor v FC of T 2001 ATC 4146, the Full Federal Court confirmed that capital gains derived from the sale of a property were subject to CGT where the oral contract was made pre-CGT but the written contract was exchanged post-CGT. The court was swayed by the convention in the law on the sale of land in NSW that no binding contracts existed until the exchange of contracts. This convention could be overridden by the parties with mutual intention, but clear evidence of this intention had to be produced. In this case, the evidence showed that the first time that the parties had reached a consensus with the intention to form legal relations occurred on exchange and the parties could not rewrite history by backdating the contract. | Detailed Reasoning - Application to your case: In this case, your parents decided to purchase a property for you while you were overseas and on your return they intended to transfer that property to you. However, as the CGT legislation was close to being introduced your parents accountant advised them to transfer the property before this legislation commenced. The day after you arrived in Australia from overseas you were taken to your parent’s solicitors where all documents were sighed to transfer the property into your name. These documents were left at the solicitors business so they could lodge them with appropriate authority to transfer the property. The acquisition of the property by you and acceptance by your parents shows that there was mutual intention of all parties to enter into binding obligations when the contracts were signed. Therefore, it is viewed that you acquired the dwelling when the contract was entered into and signed before 20 September 1985.