Private ruling: CGT - main residence exemption
Date of advice: 4 October 2024
Published: 11 November 2024
Ruling period: For the income year ending DDMMYYYY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does CGT event A1 apply to you when you transfer your 50% ownership interest in the property as joint tenant to your family member who will become the sole owner? | A1: Yes. | Q2: Are you entitled to claim the capital gains tax main residence exemption to disregard any capital gain or loss on the transfer of the property to your family member? | A2: Yes.

Relevant facts and circumstances: You and your Child A purchased vacant land located at X (The property), in a contract dated DDMMYYYY for $X as joint tenants. You are an Australian resident for taxation purposes. Settlement of the property you purchased occurred on DDMMYYYY. Shortly after you built your main residence on the land. You have lived in the home with your Child A for the entire ownership period since construction was completed. You do not have an ownership interest in any other properties worldwide. The land is X square metres which is less than 2 hectares. The property has never been used to produce income. In the 20XX-XX income year, you will transfer your 50% ownership interest to your Child A who will become the sole owner of the property. You will not receive any consideration for the transfer however land transfer duty will be paid on the transaction.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 110-25 | Income Tax Assessment Act 1997 section 116-30 | Income Tax Assessment Act 1997 Subdivision 118-B Question 1 | Summary | Disposing of your 50% interest in the property to your Child A is treated as a CGT A1 event. | Detailed reasoning | Your assessable income as an Australian resident includes your net capital gain (if any) for the income year (section 102-5 of the Income Tax Assessment Act 1997 (ITAA 1997)). A capital gain or capital loss is made only if CGT event happens (section 102-20 of the ITAA 1997). CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. Generally, the time of the event is when the contract for the disposal is entered into. If there is no contract, the event occurs when the change of ownership takes place (section 104-10 of the ITAA 1997). | If CGT event A1 occurs and you receive no capital proceeds, you will be deemed to receive the market value of the CGT asset you have disposed of as capital proceeds as per section 116-30 of the ITAA 1997. Themarket valueis worked out, as at the time of the CGT event. | The transfer of your 50% ownership interest in the property you jointly own with your Child A is a CGT A1 event. On the date the ownership interest changes, you will be deemed to have received the market value of half the property due to the market value substitution rule for capital proceeds. You will also be entitled to use half of the cost base calculated under section 110-25 of the ITAA 1997 to work out your capital gain. | Question 2 | Summary | You and your child have always used the property as your main residence throughout the entire ownership period. The property has never been used to produce rental income to this point in time of the ruling period. | Detailed reasoning | Subdivision 118-B of the ITAA 1997 allows you to disregard a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence. You will qualify for a full CGT exemption, if you are an Australian resident for tax purposes and the dwelling: | • Was the home of you, your spouse and other dependants for the entire ownership period, | • The home was not used to produce assessable income | • The land is on 2 hectares or less. | Therefore, you will not have to pay tax on any capital gain when you transfer to your Child A, and you ignore any capital loss.