Private ruling: Capital Gains Tax exemption
Date of advice: 14 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Can Capital Gains Tax (CGT) be disregarded on your share of the sale of the property? | A1: No.

Relevant facts and circumstances: Your parent owned the property as their main residence until their death. Your sibling also resided in the property. Your parent died in late 20AA. Your sibling remained in the property after their death. You did not live at the property at the time of your parents passing. Your parent left the property to you, sibling A and sibling B as tenants in common. At this time you acquired approximately XX% of the legal ownership of the property. The title was transferred to you and your siblings in mid 20BB. Sibling A did not want to leave their home. You assisted sibling A to stay in the property by agreeing not to sell the property and to help buy out sibling B’s share of the property. You acquired sibling B’s share and the title was changed in early 20CC to reflect you and sibling A as owning the property as tenants in common. Therefore you acquired approximately 17% of sibling B’s share at this time. Prior to mid 20XX developers expressed their interest in purchasing the complex the property was situated in. New strata laws introduced just prior to this event stated that if a majority of owners (75% or more) agreed to a sale then the remaining owners were also forced to sell their properties. Though you and sibling A had expressed no interest to sell the property to the developers, more that 75% of the building had been purchased and you and sibling A were forced to sell the property to the developers under the new strata laws. Contracts for sale were exchanged in mid 20XX, with settlement occurring in early 20YY. Since selling the property sibling A is now living with another family member. It is your intention to use the proceeds from the sale of the property to purchase a new property for sibling A. The title of this new property will have both you and sibling A as legal owners as tenants in common.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-135 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-195

Reasons for decision: Summary: Capital gains tax (CGT) is the tax that you pay on any capital gain you include on your annual income tax return. It is not a separate tax, merely a component of your income tax. You make a capital gain or capital loss as a result of a CGT event. The most common CGT event is CGT event A1. Under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997), a CGT event A1 happens when you dispose of an asset to someone else, for example if you sell or otherwise dispose of a dwelling. CGT event A1 will happen when you dispose of your interest in the property. The time of the event is when you entered into the contract for the disposal. There are some circumstances where capital gains tax would not be payable even though a gain has been made as a result of a CGT event. Main residence exemption Generally, you disregard any capital gain or capital loss made on a dwelling where: ● you move into it as soon as practicable after you acquired it, (section 118-135 of the TAA 1997); ● you have occupied the dwelling as your main residence throughout your ownership period (section 118-110 of the ITAA 1997); ● the dwelling has not been used to produce assessable income; ● any land on which the dwelling is situated is 2 hectares or less In your case, you have never lived in the property while you were legal owner. Therefore you are not entitled to a main residence exemption and CGT will be payable on your share of the proceeds. Section 118-195 allows the Commissioner to exercise his discretion, under certain circumstances, to extend the two year period in which a deceased’s main residence is sold and CGT is disregarded. The circumstances under which the Commissioner would exercise the discretion is where the residence was not sold within the two year period due to circumstances outside the control of the of the executors or beneficiaries of the estate. The main reason the property was not sold within the two year time period was that sibling A wanted to remain there and would still be there if not for the forced sale from the developer. This is not a situation outside of your control and discretion would not be granted in this case. There are no other provisions that would allow you to disregard the capital gain made on the disposal of your interest in the property in the circumstances you describe.