Private ruling: Capital gains tax
Published: February 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Did you acquire an ownership interest in the property for capital gains tax (CGT) purposes when it was originally purchased? | A1: No. | Q2: When you purchase X% of the property from your spouse will the acquisition date for CGT purposes the original purchase date? | A2: No. | Q3: Are you entitled to calculate the main residence exemption the original purchase date as your acquisition date of the property? | A3: 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. The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: · the application for private ruling received. You and your spouse acquired a property. The title was registered in your spouse's name. You and your spouse made a joint decision to register the title in the name of your spouse for estate planning and asset protection purposes. You have contributed funds to the acquisition of the property being payment of the deposit and repayment of the mortgage. You do not have any other property which you treat as your main residence. You intend to purchase X% of your spouse's legal interest in the property for market value. You will borrow the funds from a financial institution which will be secured by a mortgage over your share of the property. You and your spouse plan to relocate temporarily. The property will be rented out for income producing purposes for several months.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 118-130(1) | Income Tax Assessment Act 1997 subsection 118-130(2) | Income Tax Assessment Act 1997 paragraph 118-130(2)(a) | Income Tax Assessment Act 1997 paragraph 118-130(2)(b)

Reasons for decision: Summary: For CGT purposes (under subsection 118-130(1) of the Income Tax Assessment Act 1997 (ITAA 1997)) you have an ownership interest in a dwelling if you have a legal or equitable interest in the land on which it is erected, or a licence or right to occupy it. Subsection 118-130(2) of the ITAA 1997 states that for a land or a dwelling that you acquire under a contract, you have an ownership interest in it from: (a) the time when you obtain legal ownership of it; or (b) if the contract or a related contract gives you a right to occupy it at an earlier time - the earlier time. Legal title and equitable interest Taxation Ruling TR 93/32 deals with the division of net income or loss between rental property co-owners. Paragraph 42 of TR 93/32 explains that any capital gain or loss should be apportioned on the same basis. Generally, the profit or loss should be shared according to the legal interests of the owners. If the equitable interest does not follow the legal title, there is some basis for the profit or loss to be distributed on the equitable and not the legal basis. However, paragraph 41 of TR 93/32 states the following: We consider that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title. In this case, you and your spouse purchased a property. However, the legal title to the land is solely in the name of your spouse. You have advised that you were omitted from the title for asset protection purposes. Given the nature of your relationship we consider that the equitable ownership of the property is exactly the same as the legal title. You did not acquire the property under a contract. Therefore, you did not acquire a right to occupy the property as set out in subsection 118-130(2) of the ITAA 1997. You do not hold a legal or equitable interest and you do not have a right to occupy the property. Therefore, you did not acquire any ownership interest in the property when it was originally purchased. You intend to purchase X% of the property from your spouse. To complete this transaction, you will take out a loan secured by the property. When you purchase the property from your spouse, you will acquire legal ownership of X% of the property. As discussed above, your ownership interest will commence when you obtain legal ownership of the property. Therefore, the acquisition date for CGT purposes will not be the original purchase date. You did not acquire an ownership interest in the property when it was originally purchased. Therefore, you cannot calculate your entitlement to the main residence exemption using this date as the acquisition date.