Private ruling: Capital gains tax
Published: November 2013
Ruling period: Year ended 30 June 2005 | Year ended 30 June 2013
Date scheme commenced: 1 July 2004

Ruling: Question and Answer | Are you able to disregard any capital gain or capital loss that occurred on the sale of your ownership interests in a property that you inherited? | Yes.

Relevant facts and circumstances: You and your sibling inherited a unit after the death of your relative who died after 20 September 1985. Your deceased relative acquired the property before 20 September 1985. Your sibling was residing in the property for several years before your relative's death and has resided there ever since. After being advised of the inheritance from the firm handling the deceased estate, it was agreed that you would sell your interest in the property to your sibling and that the lawyers of the estate would transfer the unit from the estate into your sibling's name. Your sibling paid you a sum of money within two years of your late relative's death. You were not aware that the firm handling your late relative's estate did not undertake to remove your name from the title. You did not become aware that your name was still on the title until last year when your sibling was seeking to borrow some money against the property. To honour the agreement you and your sibling had made when your late relative passed, you had a legal representative draw up an agreement which you both signed and consequently the property was transferred into your sibling's name. The transfer duty was calculated as at the date you originally entered into the agreement which was within two years of the late relative's death. You submitted the required documentation to the land title authorities several years later and you have provided a copy of these signed and approved forms with the transfer date showing as a date within two years of your late relative's death.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 100 | Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subdivision 118-B | Income Tax Assessment Act 1997 Subsection 118-195(1)

Reasons for decision: Summary: Please note that all references are to the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Capital gains tax: Division 100 explains the fundamentals of capital gains tax (CGT). CGT affects your income tax liability because your assessable income includes your net capital gain for the income year. Your net capital gain is the total of your capital gains for the year, reduced by certain capital loses you may have. You can make a capital gain or loss only if a CGT event happens. There are a wide range of CGT events and the most common is CGT event A1. Section 104-10 explains that this event occurs when there is a change of ownership for an asset, such as on the disposal of a dwelling from one person to another. The time of the event is taken to be when you enter into a contract for the sale, or if there is no contract, when you cease being the owner, or part owner of the property. Therefore, when you sold your share of your late relative's property to your sibling there was a change in ownership for that property and CGT event A1 occurred. | Detailed Reasoning - General CGT exemptions: Division 118 sets out various exemptions for many capital gains and losses. Subdivision 118-B explains that you can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is a main residence. | Detailed Reasoning - Dwellings acquired from a deceased estate: Subdivision 118-B includes section 118-195 which contains the rules for dwellings acquired from deceased estates. It explains how a capital gain or capital loss made from a CGT event that happens in relation to a beneficiary's ownership interest in a dwelling may be disregarded. One of the main requirements for exemption is that a disposal of an inherited property should occur within two years of the date of death of the deceased. The Commissioner may extend this two year period under certain circumstances. You have provided documentation endorsed by the relevant land title authorities verifying your disposal date as within two years of your relative passing. Accordingly the rules contained in section 118-195 as they apply to you as a beneficiary in your relative's estate operate as follows: 1. Your relative acquired the property before 20 September 1985. 2. You inherited a share of your relative's property when they died after 20 September 1985. 3. You sold your share of the property to another beneficiary within two years of your relative's death. 4. Any capital gain or capital loss that was made when the CGT event A1 took place on the disposal of your ownership interest in the property is disregarded.