Private ruling: Capital gain
Date of advice: 29 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Can your share of the capital gain on the sale of the jointly owned rental property be disregarded? | A1: No. | Q2: Is your share of the capital gain on the sale of the jointly owned rental property included in your assessable income? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Section 104-10.

Reasons for decision: Summary: Capital gains tax provisions Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. The rental property is a CGT asset. Section 104-10 of the ITAA 1997 makes the disposal of a CGT asset a CGT event. The sale of the property is therefore a CGT event (CGT event A1). You make a capital gain if the capital proceeds from the disposal, is more than the asset's cost base. You will make a capital loss if those capital proceeds are less than the reduced cost base. For CGT purposes, each owner of a jointly owned property shares the calculated capital gain according to their legal interest in the property. Capital proceeds Under section 116-20(1) of the ITAA 1997 the capital proceeds from a CGT event are the total of the money the entity has received, or are entitled to receive, in respect of the event happening and the market value of any other property received, or is entitled to receive, in respect of that event happening (worked out as at the time of the event). Where on the disposal of an asset, no money or property is received, the market value substitution rule, contained in section 116-30 of the ITAA 1997, generally applies. However, in your case money was received in relation to the sale. The fact that the money went to various parties and you did not physically receive any money does not alter the calculation of the capital gain. The money is considered to have been dealt with on your behalf, albeit as part of the court order. It is acknowledge that you previously agreed to transfer your share of the property to your former spouse. As the title transfer did not occur, the agreement has no effect for income tax purposes. The Commissioner can only consider what has actually occurred rather than what was intended to occur. The fact that the consent order required the balance of the sale proceeds to be paid to your former spouse does not confer full legal ownership of the property on them. Such an arrangement under the Family Law Act 1975 is private in nature and has no effect for income tax purposes. That is, the capital gain from the rental property is to be shared according to your legal interest in the property. The legislation applies to what in fact happened rather than what may have been in mind at some earlier or later point in time or what was intended to happen. The legislation provides no exemption in your situation. The Commissioner has no discretion to vary or ignore the capital gain in your specific circumstances. Therefore your share of the capital gain is included in your assessable income.

Relevant facts: You and your former spouse jointly owned a rental property. | It was agreed that the rental property was to be transferred to your former spouse. As they could not secure a loan the property title remained in both your names. | Under the Court Order, the property was to be sold and all the proceeds after costs were given to your former spouse. The Court Order did not name your former spouse as the sole owner of the property. | The property was sold. On settlement, cheques were paid to various entities with the balance being paid to your former spouse.