Private ruling: CGT events
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2004

Ruling: Q1: Did Capital Gains Tax (CGT) event B1 in section 109-5 of the Income Tax Assessment Act 1997 (ITAA 1997) occur when use and enjoyment of a property passed to you? | A1: No. | Q2: Does CGT event A1 in section 109-5 of the ITAA 1997 occur when the property is transferred into your name? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 109-5 | Income Tax Assessment Act 1997 Section 104-15

Reasons for decision: Summary: The legislative references referred to herein are from the ITAA 1997, unless otherwise stated. Section 109-5 covers general acquisition rules and provides a table that sets out specific rules for the circumstances in which, and the time at which, you acquire a CGT asset as a result of a CGT event happening. According to the table in section 109-5 CGT event B1 (about use and enjoyment before title passes) happens if you enter into an agreement under which the right to the use and enjoyment of a CGT asset passes to you and title in the asset will or may pass to you at the end of the agreement. An agreement may come to an end for the purposes of CGT event B1 either: · at the end of the period for which the agreement runs; or · during that period. This is so whether the term of the agreement is for a fixed period, for a defined period, or for a period that is to end on the occurrence of a particular event. Section 109-5 further provides that you acquire the asset at the time when you first obtain the use and enjoyment of the asset (unless title does not pass to you at or before the end of the agreement). If the asset does not pass, in fact, during or at the end of the period (i.e., at the end of the agreement), CGT event B1 does not apply. In your case, you made a verbal agreement with another entity to purchase their land. The other entity agreed to transfer the property to you once a certain event happened. You used the property as your main residence. The event happened to the other entity and a few years later, one of the owners transferred their share of the land to you. One owner has not transferred their share of the land to you. As the land did not transfer to you at the end of the agreement (at the happening of the event), CGT event B1 does not apply, instead CGT event A1 will occur when the land is transferred to you. CGT event A1 occurs when an entity disposes of a CGT asset to you. You acquire the CGT asset when the disposal contract is entered into or, if none, when the entity stops being the asset's owner. | Detailed Reasoning - Conclusion: CGT event B1 is not the relevant event in this case. Based on the facts provided, CGT event A1 will be triggered at the time the land is transferred to you.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: You made a verbal agreement with another entity to purchase a property they owned. | The other entity agreed that you could live on the property and they would transfer the property to you once a certain event happened. | You took possession of the property and used it as your principal place of residence. | The particular event happened to the other entity and a few years later one of the owners transferred their share of the land to you. The other owner has not yet transferred their share of the property to you. | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.