Private ruling: Pre-CGT Asset
Date of advice: 28 November 2025
Published: 12 January 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the proposed sale of the farming land be exempt from the capital gains tax (CGT) provisions contained in Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997), under paragraph 104-10(5)(a) of the ITAA 1997 being an asset acquired before 20 September 1985? | A1: No.

Relevant facts and circumstances: The Taxpayers own a farmland. The farmland was acquired by the Taxpayers in the following circumstances: • The farmland was owned by Individual A. • The farmland was gifted to the Taxpayers. • The Taxpayers leased back the farmland to Individual A to continue the use of the farmland. • A sub-lease agreement had been executed for this purpose. The sub-lease agreement The sub-lease agreement executed between the Taxpayers (as sub-lessors) and Individual A (as sub-lessee) was dated prior to 19 September 1985. The relevant details were as follows: • The Taxpayers had agreed to sublet the farmland to Individual A to hold and take possession of the farmland for a term of XX years. • Immediately following the signing of the agreement, the parties had agreed to apply to the Mortgagee and to the Minister for Lands for the consent of the Mortgagee to the sub-lease. • The sub-lease was subject to the approval being obtained by the Minister for Lands as required by the relevant Act. • Individual A will continue to use and enjoy the farmland for the purpose of conducting their business and for residence and pay all rates levied in respect of the land. • The Taxpayers will attend to the payment of all Crown rentals in respect of the land. The sub-lease agreement was signed and witnessed after 20 September 1985. It was then consented by the state's Industry Development Corporation and stamped after 20 September 1985. Dealing number XXX was received by the state's Department of Lands after 20 September 1985 and registered on the title after 20 September 1985. Information provided The Applicants have provided information in a number of documents including: • Private ruling application • Correspondence from the Taxpayers' solicitors to the Land Administration Commission. The letter sought consent for the transfer of the farmland to the Taxpayers. The letter was stamped by the Department of Lands prior to 19 September 1985. • Correspondence by the bank to the Taxpayers' solicitors . The bank required the Taxpayers to assume the existing debt on the farmland before a transfer can be effected. • Correspondence from the solicitors to the Taxpayers . This letter requested the Taxpayers for various documents to be signed and witnessed. • Correspondence from the Bank to the Taxpayers. The bank advised that a loan of has been approved to pay in part for the existing debt and for the purchase of the farmland. The loan was approved after 20 September 1985. • Historical title search document . The historical title search from the state's Titles Registry indicated, among other things, the following: ­ The Taxpayers are registered owners of the farmland as tenants in common. A correction of owner details was registered on the title after 20 September 1985 to indicate taxpayers being the owners as tenants in common ­ The sub-lease agreement was registered after 20 September 1985. ­ A certificate of title was issued after 20 September 1985.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(2) | Income Tax Assessment Act 1997 subsection 104-10(3) | Income Tax Assessment Act 1997 paragraph 104-10(5)(a) | Income Tax Assessment Act 1997 subsection 104-15(1) | Income Tax Assessment Act 1997 paragraph 104-15(4)(b) | Income Tax Assessment Act 1997 subsection 109-5(1) | Income Tax Assessment Act 1997 subsection 109-5(2)

Reasons for decision: Summary: All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. | Detailed Reasoning - CGT event A1: Section 104-10 contains the rules dealing with CGT event A1. Subsection 104-10(1) provides that CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. If the taxpayer did not have ownership of the asset, then CGT event A1 cannot occur to that taxpayer. Subsection 104-10(3) provides that the time of CGT event is when you enter into the contract for the disposal of the asset, or if there is no contract, when the change of ownership occurs. Paragraph 104-10(5)(a) provides that a capital gain or capital loss is disregarded if the asset was acquired before 20 September 1985. | Detailed Reasoning - Acquisition of a CGT asset: Division 109 contains the operative rules for determining when a CGT asset is acquired and establishes the time of acquisition for CGT purposes. The time when a CGT asset is acquired is crucial as it determines the CGT consequences which can arise in relation to the asset. Thus, if an asset was acquired before 20 September 1985, there is generally no CGT liability which can arise from a CGT event happening in relation to the asset. A CGT asset is generally acquired at the time of the CGT event or when the other relevant event happens. In general, a CGT asset is acquired when the taxpayer becomes its owner (subsection 109-5(1)). A table in subsection 109-5(2) lists the specific rules which apply when a taxpayer acquires a CGT asset as a result of a CGT event happening. For the purposes of determining whether an asset was acquired before 20 September 1985, the acquisition date is generally the date on which you became the legal owner of the asset. In the case of real property this is usually the date of settlement when title is transferred. However, if you entered into a binding contract to acquire the property before 20 September 1985, the acquisition date is taken to be the date of the contract even if settlement occurred after that date. In some circumstances ownership for CGT purposes may also be determined by beneficial interest. The issue of when a contract or agreement is formed and when a CGT asset was acquired have arisen in a number of cases. In Gardiner v FCT (2000) 44 ATR 1065 , a taxpayer acquired a property through an oral agreement and later, a formal written contract. The Commissioner of Taxation argued that the written contract differed from the oral agreement regarding the property's size, purchase price, and parties. The AAT found that the contract was formed when the taxpayer's offer was accepted by the vendor even though the formal exchange of contracts happened two months later. The acceptance of the offer was documented through formal correspondence and was held to be the point at which the contract for acquisition was legally formed. In McDonald v FCT (1998) 38 ATR 563 , the taxpayer argued that a property was acquired under an oral agreement on 13 September 1985, before the introduction of CGT. Although the contract was dated 13 September, exchange did not occur until 31 October 1985. The Court held that the contract was formed on 31 October 1985, when the parties reached consensus with the intention to create legal relations evidenced by the formal exchange of contracts and mutual obligations. The Court confirmed that backdating the written document could not alter the legal formation date. In Corin v Patton (1990) 169 CLR 540 , Mrs Patton, a joint tenant of land, executed a transfer of her interest to her brother while terminally ill, but died before registration. The High Court held that the transfer did not sever the joint tenancy because Mrs Patton had not done all that was necessary to effect the transfer. It was found that she had not completed the necessary steps for the transferee to obtain legal ownership. As these actions were incomplete, the transfer was ineffective at law and equity. In AAT Case 4697 (1988) 19 ATR 4011 , the taxpayer received a gift of partly paid shares in Broken Hill Metals N.L. and later sold them in April 1987. The Commissioner argued the shares were acquired when transferred into the taxpayer's name in 1986/87 and amended the assessment for capital gains. The AAT held that the taxpayer acquired the shares when he became the beneficial owner on Christmas Day 1983, as his mother intended and both parties acted accordingly. Beneficial ownership was established because the mother had clearly divested her interest and both treated the shares as belonging to the taxpayer, even though legal title had not changed. The Tribunal confirmed that beneficial ownership, not registration, determined acquisition, meaning the shares were acquired before 20 September 1985 and more than 12 months before disposal. | Detailed Reasoning - Taxpayers' contentions: The Taxpayers claimed that the farmland is a pre-CGT asset and explained that: • the parties had engaged lawyers to transfer the property before 19 September 1985 • the bank information showed the transfer is for consideration in that the Taxpayers were assuming the bank debt of the vendor. • the Taxpayers had leased the farmland back to Individual A prior to 19 September 1985. The sub-lease agreement was dated prior to 19 September 1985. The Taxpayers also maintained that even though no evidence of a written agreement by way of gift can be provided, CGT event B1 under section 104-15 may apply as the Taxpayers had enjoyment and use of the farmland when it was gifted to them by Individual A. | Detailed Reasoning - Application to your circumstances: Although there is no statutory definition of what constitutes entering a contract, the most common indicator is a formal written agreement. Subsection 104-10(3) provides that the time of CGT event A1 happening is when you enter into the contract for the disposal of the asset, or if there is no contract, when the change of ownership occurs. In case of real property, information regarding the change of ownership is generally reflected in the land title records. In this case, there is no indication of a written agreement having been executed for the transfer of the farmland by way of gift from Individual A to the Taxpayers. It is therefore necessary to determine whether the evidence provided by the Taxpayers leads to a conclusion that they have acquired the farmland prior to 20 September 1985. The Taxpayers claimed that they have engaged their lawyers prior to 19 September 1985 concerning the transfer of the farmland to the Taxpayers. Based on the information provided, the Commissioner is of the view that the Taxpayers acquired the farmland after 20 September 1985. The following facts have been relied on in forming the view: • Although the sub-lease agreement was dated prior to 19 September 1985, the said agreement was signed by the parties after the 20 September 1985. • The correspondence from the bank advised the farmland can only be transferred if the Taxpayers will assume the mortgage debt. However, the loan was approved by the bank after 20 September 1985 to pay in part for the existing debt and for the purchase of the farmland. • The historical records did not show a change in the ownership of the farmland to the Taxpayers prior to the sub-lease agreement being recorded. The sub-lease agreement was registered after 20 September 1985. The historical records also indicated a change in ownership in 2005. • The validity of the sub-lease agreement was dependent on the following: ­ Following the signing of the sub-lease agreement the parties were required to apply to the Mortgagee and to the Minister for Lands for the consent of the Mortgagee to the sub-lease. A loan was granted to the Taxpayers after 20 September 1985 to pay in part for the existing debt and for the purchase of the farmland. ­ The sub-lease agreement provided that it was subject to approval being obtained by the Minister for Lands. The Minister for Lands received the agreement after 20 September 1985. As stated in Corin v Patton (1990), all essential steps must be completed to put the transferee (the buyer) in a position to register the property. These steps include properly signing the transfer document, delivering it to the transferee, and meeting statutory requirements such as paying stamp duty. The transferee must also be able to lodge the document for registration without requiring further action from the transferor (the seller). As previously discussed, a mortgage existed on the farmland held by Individual A. It required the bank's consent before the transfer to the Taxpayers can occur. This restricted the control over the asset by the Taxpayers until they assume the debt over the land. The loan from the bank was not obtained until after 20 September 2025. Further, the sub-lease agreement was subject to the approval by the Minister for Lands which was received after 20 September 1985. Consequently, the Commissioner is of the view that the farmland is a post-CGT asset as the Taxpayers acquired ownership after 20 September 1985. | Detailed Reasoning - Did CGT event B1 occur when the Taxpayers acquired the farmland by way of gift?: For clarity, we will address the issue raised by the Taxpayers in respect of CGT event B1. Subsection 104-15(1) states that CGT event B1 happens if you enter into an agreement with another entity under which: a) the right to the use and enjoyment of a CGT asset you own passes to the other entity; and b) title in the asset will or may pass to the other entity at or before the end of the agreement. The time of the event is when the other entity first obtains the use and enjoyment of the asset (subsection 104-15(2)). An agreement may come to an end for the purposes of CGT event B1 either: • at the end of the period for which to agreement runs, or • during that period (Taxation Determination TD 1999/78). If the CGT asset which is the subject of the agreement was acquired by the taxpayer before 20 September 1985, the capital gain or loss made by the taxpayer when CGT event B1 happens to the asset is disregarded (paragraph104-15(4)(b)). This means that capital gains made from pre-CGT assets as a result of CGT event B1 are in effect exempt from CGT. CGT event B1 effectively brings forward the time of a disposal (and the time of a capital gain or loss) under such an agreement from the time when the actual disposal takes place to the time when the use and enjoyment of the asset changes hands. In other words, the asset is treated as if it was disposed of when the use and enjoyment of the asset changes rather than waiting until the time when there is an actual disposal. In this case, CGT event B1 did not happen when the farmland was gifted to the Taxpayers for the following reasons: • No agreement was entered by Individual A and the Taxpayers that allowed the Taxpayers to the use and enjoyment of the farmland before the ownership of the asset will pass to the Taxpayers. The sub-lease agreement did not constitute an agreement for the purpose of subsection 104-15(1). • Individual A remained in possession of the farmland. • Although the Taxpayers enjoyed the use of the farmland through the rental arrangement with Individual A, they were not entitled to receive rental payments until after 20 September 1985. | Detailed Reasoning - Conclusion: Based on the above, it is the Commissioner's view that the proposed sale of the farming land was acquired by the Taxpayers after 20 September 1985, hence is not exempt under paragraph 104-10(5)(a). Any capital gain or capital loss from the proposed sale of the farmland will have consequences under Part 3-1 of the ITAA 1997.