Private ruling: CGT - acquisition - acquisition date
Date of advice: 27 August 2015
Published: August 2015
Ruling period: 2015-16 income year
Date scheme commenced: 1 July 19XX

Ruling: Q1: Did you acquire the whole of the 'purchased interest' in the property before 20 September 1985? | A1: Yes. | Q2: Did you acquire any part of the 'inherited interest' in the property before 20 September 1985? | A2: 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. Before 20 September 1985, your sibling and you purchased a vacant lot as tenants in common in equal shares. Your sibling and you immediately upon purchasing the land commenced steps to begin the building of commercial premises on the vacant land. At this time when you purchased the vacant land, it was your intention that upon obtaining all the necessary permits that you would take leave from your job and complete the main construction of the commercial premises. You immediately employed a Consulting Engineer and Licenced Surveyor to complete a survey of the land to allow you to obtain a building permit to construct the commercial premises. You received an invoice upon completion of the survey work together with a Survey Plan produced by the surveyor. You also immediately employed Designers to draft and prepare the design for the proposed commercial development on the vacant property. They completed the Floor Plan and Site layout of the property development promptly. On or about the same time, you also engaged the services of a Soil Engineer for completion of a Site Report in relation to the foundations required in building the commercial premises on the property. The Site Report was also completed promptly. The Soil Engineer also prepared computations for the laying of the ground slab and first floor slab in relation to the construction of the commercial premises. You also obtained Fire Protection Approval required in building the commercial premises. At the commencement of the construction of the commercial premises on the vacant land, you were required to obtain other Council Permits. Shortly afterward, you received your Building Permit in relation to construction of the commercial premises. You then paid and received a receipt for payment of Building and Scaffolding fees and for the pan service required for service of the portable toilet set up on the building site. This is the Building Permit receipt. During this period, the main tenant approached you with the intention of taking a shop to use as their premises. You were told that they would require a specific internal fit-out to suit their requirements. The Plan of the Proposed Shop Development was amended and received Shire approval to allow the proposed changes. You then took your paid leave from your job and you personally built and supervised the construction of the commercial premises on the property. You were entitled to take X weeks leave which you extended by a week and you completed construction of the commercial premises by that date. You were present at the building site every day and you personally built and/or supervised such matters as: • The spraying of pesticide on the land • The pouring of the concrete slabs • Overcoming the problems with the neighbouring foundations which overlapped your property, and • The myriad other small problems which arose while you were building the commercial premises. The construction of these commercial premises was completed before you finished your leave. You made a point of making sure that all building permit requirements were complied with by any of the subcontractors working on the site. You carried out and supervised the construction work as your sibling was very ill at this time. While you were building the commercial premises, you received Plans from the main tenant, who was now fully committed to taking the larger portion, showing how they intended to install their internal fittings once you had completed the main construction of the commercial premises. You also received other specifications from the main tenant. These specifications set out their electrical etc internal requirements on completion of the building fit-out. You finished the completion of the main structure of the building of the two shops before the end of your long service leave and before 20 September 1985. After 20 September 1985, the final Drainage Test was carried out on the property. This is the final sewer drainage test after the construction of the commercial premises is fully completed and the fit-out completed. Some two years later, your sibling died and as you held the property as tenants in common in equal shares, you became the sole proprietor of the property on which the commercial premises had been constructed. For the purpose of this private ruling: • The 'purchased interest' in the property refers to your interest in the property that you originally acquired and includes your interest in the commercial premises that you hold as a result of this acquisition, and • The 'inherited interest' in the property refers to your interest in the property that you acquired as an inheritance from your sibling, and includes your interest in the commercial premises that you hold as a result of this acquisition.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 108-55(2), | Income Tax Assessment Act 1997 Section 109-5, | Income Tax Assessment Act 1997 Section 109-10 and | Income Tax Assessment Act 1997 Section 128-15.

Reasons for decision: Summary: You acquired the whole of the 'purchased interest' in the property before 20 September 1985. | Detailed Reasoning - Detailed reasoning: You bought your 'purchased interest' in the land component of the property before 20 September 1985. This date is the acquisition date in accordance with section 109-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Common law principles hold that what is attached to the land is part of the land; however, the capital gains provisions contain some exceptions to this principle. Subsection 108-55(2) of the ITAA 1997 states that 'A building or structure that is constructed on land that you acquired before 20 September 1985 is taken to be a separate CGT asset from the land if: (a) You entered into a contract for the construction on or after that date, or (b) if there is no contract - the construction started on or after that day. Section 109-10 of the ITAA 1997 states that you acquire a building or structure when the construction (or work that resulted in the creation) started if it is a separate CGT asset. If these provisions apply, the building or structure is treated as a post-CGT asset that is subject to the capital gains provisions. | Detailed Reasoning - Your situation: You were an owner/builder so there is no construction contract. You have physically constructed the commercial premises before 20 September 1985 during your period of leave. Construction commenced before 20 September 1985 so the 'separate CGT asset' provision mentioned above does not apply to it. Consequently, your 'purchased interest' in both the land and the commercial premises is treated as one CGT asset that was acquired by you before 20 September 1985. | Summary: You did not acquire any part of the 'inherited interest' in the property before 20 September 1985. | Detailed Reasoning - Detailed reasoning: Your sibling acquired their interest in the property at the same you acquired your interest in it. This date is before 20 September 1985. This acquisition date also applies to the commercial premises as a capital improvement to the property for the reasons mentioned above. Your sibling continued to own this interest in the property until they passed away. Their interest in the property then devolved to the Estate and subsequently passed to you as a beneficiary of the Estate. Subsection 128-15(2) of the ITAA 1997 states that a beneficiary acquires a CGT asset that passes to them on the day the deceased passed away. Consequently, your 'inherited interest' in both the land and the commercial premises is treated as one CGT asset that was acquired by you on the date your sibling passed away, which was after 20 September 1985.