Private ruling: Capital gains tax
Published: August 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Will a capital gains tax (CGT) event occur when you dispose of the property to your relatives? | A1: Yes.

Relevant facts and circumstances: 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 and · A Deed. In the 200X financial year, you and your spouse purchased a parcel of vacant land. An interest only loan was obtained to finance this purchase. You and your spouse intended to eventually transfer the land to your relatives. Your relatives were unable to obtain finance at the time. Your relatives were declared bankrupt. They were discharged from their bankruptcy a few years later. Your relatives applied for and received approval to construct a dwelling and shed upon the land. Your relatives have paid the rates and other charges assessed in respect of the land. At the request of your relatives, you and your spouse increased the loan. You and your spouse have drawn upon the loan and provided the funds to your relatives for various expenses. Your relatives have paid all the instalments of interest in respect of the loan and from time to time have also repaid some of the principal. Your relatives decided they wanted you and your spouse to transfer ownership of the land to them. A Deed setting out the terms of the transfer was drawn up by a firm of solicitors. In the relevant financial year, the loan was finalised and the property was transferred to your relatives.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 120-20 | Income Tax Assessment Act 1997 section 104-10

Reasons for decision: Summary: Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a CGT event happens to a CGT asset. Generally, what is attached to land is considered part of the land. That is, the land and what is attached is considered a single CGT asset. 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. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). | Detailed Reasoning - Beneficial ownership: A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset. It is the beneficial owner of a CGT asset that is liable for capital gains tax upon sale of the assets. | Detailed Reasoning - Application to your circumstances: In this case, you and your spouse acquired a loan to purchase vacant land. This loan was increased to fund various improvements to the land. When the property was transferred to your relatives in the relevant financial year, there was a change of ownership. At this point in time, CGT event A1 occurred for you and your spouse. Therefore, any capital gain or loss made on the property should be included in the relevant income tax return.