Private ruling: CGT - disposal of ownership interest
Date of advice: 18 August 2022
Published: November 2022
Ruling period: Income year ended 30 June 20XX | Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will capital gains tax event A1 occur due to the transfer of the title of the Property? | A1: No. As capital gains tax (CGT) event B1 had already occurred when the Agreement was entered which provided: • Person A and Person B with the use and enjoyment of the Property; and • that the title of the Property to be transferred to them under the Agreement. It is viewed that CGT event B1 is more specific to your situation under section 102-25 of the ITAA 1997.

Relevant facts and circumstances: You have been with your current partner for a significant period of time. You view your partner's child (Person A), Person A's partner (Person B), and their children as your family. Person A and their family had been living in rental accommodation for several years. Person B is self-employed who had to be to provide the financial institutions with two years of suitable business financial statements or income tax returns to meet the home loan criteria, which they couldn't do. You offered to purchase a suitable property for Person A and their family to live in, having enough funds to pay a deposit and the ability to obtain a loan to pay for the balance on the purchase of a property. Persons A and B had chosen the property (the Property) as it was located close to the primary school their children attended, and it was intended that any other children would go to the same school. You made a verbal agreement (the Agreement) with Persons A and B prior to the purchase of the Property for the sole purpose of helping them have a family home to live in without the insecurity of renting. Then once they were able to meet the home loan criteria as being self-employed, and first home buyers, they would buy the Property from you. Under the Agreement: • Persons A and B could renovate the Property to suit their needs as a growing family up until they purchased the Property • The agreed timeframe for Person A and B to purchase the Property was within a specified number of years, by a specified date • They would purchase the Property from you for a specified amount to cover the purchase price plus other costs you had incurred to acquire the Property • It was to end when Persons A and B purchased the Property; and • Nothing was provided in relation to any understanding of what would occur if Persons A and B did not purchase the Property as it was never an expected outcome. You discussed the Agreement with the real estate agent when the Property was being viewed and when it was purchased. You also discussed the Agreement with a representative of the financial institution where you later obtained a loan to purchase the Property. You entered a contract to purchase the Property with settlement occurring several months later. The keys for the Property given to Persons A and B on settlement date. You obtained a fixed term mortgage for a period of several years in relation to the Property as you considered that would be a reasonable time for Person B to build up the appropriate financial history so that they and Person A would qualify for a first homeowners home loan. The utilities for the Property were in Person A's name. A tenancy agreement was agreed upon under which Persons A and B paid you a specified amount per week, which increased overtime. A building permit was lodged with the council in relation to the extension of the existing house. Person B commenced activities in relation to renovations, improvements, and repairs on the Property after settlement occurred in relation to both the house and the surrounding yard. The council approved the building permit for the extension for the house and Person B commenced activities in relation to the foundations and brickwork for the extension to the house. The lease for Persons A and B's rental property ended several months after settlement on the purchase of the Property had occurred, with the owner increasing the rent and putting the property on the market. Person A and their family moved into the Property at the end of their lease after which they continued to undertake activities in relation to making improvements and repairs to the Property to suit the family's requirements. After a period, Person B was able to meet the loan criteria and they and Person A applied for a bank loan with a financial institution, which was approved. You entered a contract for the sale of the Property to Persons A and B for the amount as specified in the Agreement. You commenced the process of transferring the title of the Property to Persons A and B. However, when you realised the potential capital gains tax implications for you in relation to the transfer of the Property title during the conveyancing process you stopped the transfer process until you received a ruling decision on the issue. The title of the Property will be transferred into Person A and Person B's names during the period covered by this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 102-25 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 104-15