Private ruling: Capital gain tax - joint tenants - ownership interest passing to surviving joint tenant
Published: November 2011
Ruling period: Income year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1:  | A1:  | Q2:  | A2:  | Q3:  | A3: 

Relevant facts and circumstances: You and your spouse acquired a property before 20 September 1985 as joint tenants. The property has an area size over 2 hectares. You occupied the property continuously from the date of purchase and it is your main residence. Your spouse passed away after 20 September 1985 and their interest in the property transferred to you. For the purposes of this private ruling, you will dispose of the entire property in a single transaction, and will make a capital gain. You have provided a copy of the valuation you obtained in relation to the property and this document should be read in conjunction with, and forms part of, this private ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 104-10(5) | Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Section 118-120 | Income Tax Assessment Act 1997 Section 118-197 | Income Tax Assessment Act 1997 Section 128-50

Reasons for decision: Summary: The following has occurred in relation to your situation: You and your spouse purchased the property before 20 September 1985 as joint tenants. You and your spouse each owned a 50% interest in the property, meaning that you and your spouse each owned 50% of each square metre in the property; Your spouse passed after 20 September 1985, and as the surviving joint tenant, your spouse's 50% interest in property transferred to you on the date they passed away; You are viewed as having two separate capital gains tax (CGT) assets in the property. The original 50% ownership interest you acquired when the property was purchased, and the 50% ownership interest in the property you acquired when your spouse passed away. These interests will remain as separate assets throughout the period of your ownership; As your original 50% interest in the property was acquired prior to 20 September 1985, it has a pre-CGT status and you disregard any capital gain made on the disposal of this interest under subsection 104-10(5) of the ITAA 1997; You acquired the other 50% interest in the property when your spouse passed away. It is a post-CGT asset and you can not disregard the capital gain that is made when you dispose of it under subsection 104-10(5) of ITAA 1997; The dwelling, comprising of both pre and post-CGT interests, will be your main residence for your entire ownership period before you dispose of it. Therefore, any capital gain or capital loss made on the disposal of your dwelling will be disregarded under the main residence exemption; You will dispose of the entire property in one sale. Extension of exemption to adjacent land Land adjacent to a dwelling is exempt from CGT under the main residence exemption to the extent that it was used primarily for private or domestic purposes in association with the dwelling. To be eligible for the exemption: · the land, including the land on which the dwelling is built, must be two hectares or less; · the same CGT event must happen to the land and to the dwelling, or the taxpayer's ownership interest in it; and · the land must have been used primarily for private or domestic purposes in association with the dwelling. The application of the extension of the exemption to adjacent land is determined at the time of any CGT event which happens to the dwelling. Where the taxpayer has land that exceeds 2 hectares, and qualifies for the main residence exemption, the taxpayer can choose which area of land up to 2 hectares, including the land on which their dwelling is situated, the main residence exemption will apply to. A capital gain is the difference between the capital proceeds received for the disposal of the CGT asset and asset's cost base. However, in situations where only part of asset being disposed of will be liable for CGT, the cost base and capital proceeds will have to be apportioned amongst the exempt and taxable portions of the asset. Taxation Determination TD 1999/67 (TD 1999/67) {copy enclosed} provides the Commissioner's view on how a taxpayer can calculate any capital gain or capital loss made on the remainder of the land. Paragraph 3 of TD 1999/67 outlines that when the selected area of land can be separately valued, the taxpayer can calculate the capital gain or capital loss on the land that exceeds the 2 hectares by apportioning the capital proceeds and the cost base or reduced cost base (if applicable) on the basis of the valuation. This is relevant if the value of the remainder of the land is of a greater or lesser value than your selected area of land. Where the taxpayer's selected area of land cannot be separately valued, paragraph 4 of TD 1999/67, the capital gain or loss on the remainder land may be calculated by apportioning the capital proceeds and the cost base or reduced cost base (if applicable) on an area basis. Paragraph 5 of TD 1999/67 states that the amount of capital gain or capital loss attributable to the remainder land must be reasonable in the circumstances. Taxation Determination TD 97/3 (TD 97/3) {copy enclosed} provides that the Commissioner will accept any approach that is appropriate in the circumstances of a particular case where apportionment is required, such as on an area basis or a relative market value basis. | Detailed Reasoning - Application to your case: As outlined above, you own two separate CGT assets, being a 50% pre-CGT interest in each square metre of the property and a 50% post-CGT interest in each square metre of the property. Therefore, any capital gain made on the disposal of your 50% pre-CGT interest will be disregarded. When you will dispose of the property comprising of over two hectares, only two hectares will qualify for the main residence exemption. You can select which two hectares of your property you wish the exemption to apply to. Your post CGT interest in the remaining square metres of your property over the two hectares will not be covered by any exemption, and you will need to consider CGT in relation to the disposal of this portion of the property. You calculate your assessable capital gain on the remaining square metres by apportioning your cost base and the capital proceeds on a reasonable basis. Note: The cost base of the 50% interest you acquired from your spouse will be the market value of that share in the property on the date she passed away.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Capital gain tax - joint tenants - ownership interest passing to surviving joint tenant: Question 1: Will you be able to disregard the capital gain made on the disposal of your original interest in the property? | Question 2: Can you choose the 2 hectares of the property that the main residence exemption will apply to? | Question 3: Will you be able to disregard the capital gain made on the disposal of the remainder land over 2 hectares?