Private ruling: Capital proceeds on disposal of a CGT asset
Published: September 2014
Ruling period: Income year ended 30 June 2014

Ruling: Q1: Will the amount of capital proceeds calculated under section 116-20 of the Income Tax Assessment Act 1997 ('ITAA 1997') be reduced in full or in part by the amounts paid to persons in Country A, as described in the ruling application? | A1: No. The taxpayer is considered to be entitled to the total proceeds and is not entitled to a reduction.

Relevant facts and circumstances: The taxpayer inherited commercial land in Country A as a result of a family transfer, after September 1985. The taxpayer was the legal owner of the land and held 100% title. The taxpayer sold the land in the relevant income year. The gross proceeds from the sale amounted to several million dollars. Of the proceeds, a portion was paid by the purchaser directly to various associates of the taxpayer, namely, siblings and other close relatives, all of who reside in Country A and have never lived or resided in Australia. The taxpayer received the balance of the gross proceeds. Prior to the sale of the land, the taxpayer signed an agreement, agreeing to give certain siblings a sum of moneys each as a gesture of their affection. The siblings agreed to vacate the relevant premises, acknowledging the impending sale of the property. Further, the agreement states that any local or national tax resulting from the sale of the land would be the exclusive responsibility of the taxpayer. The siblings received the agreed sum of moneys from the purchaser upon the sale of the land. The taxpayer also made verbal agreements with other family members for them to directly receive a portion of the gross proceeds, paid by the purchaser. The agreements were made when the relatives knew that the land was to be sold. The taxpayer was ethically motivated to make payments to family members under the verbal agreements.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-10(3) | Income Tax Assessment Act 1997 section 102-5 | Income Tax Assessment Act 1997 section 103-10 | Income Tax Assessment Act 1997 section 116-20

Reasons for decision: Summary: Section 103-10 of the ITAA 1997 considers that a taxpayer is entitled to receive money from a CGT event if it has been applied for the taxpayer's benefit, or has been applied at the taxpayer's direction. | Detailed Reasoning - Detailed reasoning: In accordance with subsection 6-10(3) of the ITAA 1997, if an amount is statutory income apart from the fact that a taxpayer has not received it, it becomes statutory income as soon as it is applied or dealt with in any way on the taxpayer's behalf or as they direct. Income received from capital gains, such as the sale of property, is to be included in the taxpayer's assessable income in accordance section 102-5 of the ITAA 1997. Section 116-20 of the ITAA 1997 deals with the general rules about capital proceeds from a CGT event. Capital proceeds include amounts a taxpayer has received and is entitled to receive in respect of the CGT event. This is further clarified in section 103-10 of the ITAA 1997, which states that if money or other property has been applied for a taxpayer's benefit in relation to a CGT event (including the discharge of all or part of a debt owed) or has been applied at the taxpayer's direction, the CGT provisions apply as if that money or other property has actually been received by the taxpayer. The taxpayer agreed, under a written agreement, to pay a sum of money to each of the specified siblings. Further, the taxpayer made verbal agreements with other family members for them to receive a portion of the gross proceeds from the sale of the land. The purchaser paid this portion of the gross proceeds directly to the relevant family members. The fact that the proceeds were paid directly to the relevant family members at the taxpayer's direction does not diminish the fact that the proceeds belonged to the taxpayer in the first instance. The existence of a written agreement and verbal agreements does not affect the taxpayer's entitlement to receive that part of the proceeds of sale within the terms of section 116-20 of the ITAA 1997. Therefore, the capital proceeds calculated under section 116-20 of the ITAA 1997 is not to be reduced in full or in part by any of the amounts paid to either the siblings or other family members.