Private ruling: Capital Gains Tax
Published: September 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you subject to capital gains tax (CGT) as a result of a change in title of the property? | A1: Yes.

Relevant facts and circumstances: You purchased a rental property. You transferred the property to your relatives. You did not receive any money from the transfer. The only requirement was that they discharge the mortgage.

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 Section 108-5 | Income Tax Assessment Act 1997 Subsection 116-10(2)

Reasons for decision: Summary: A capital gain or a capital loss may arise if a CGT event happens to a capital gains tax asset. A CGT asset is any kind of property, or a legal or equitable right that is not property. The disposal of a property causes a CGT event A1 to occur. You dispose of an asset when a change of ownership occurs from you to another entity. In your case, when the title was transferred by you, CGT event A1 happened and as such you will be liable for any CGT liabilities that follow. The market value substitution rule takes effect if you did not deal at arm's length with another entity in connection with the event, this also applies in your case as you have not received any capital proceeds from the CGT event. The market value substitution rule, broadly, is when the capital proceeds are replaced with the market value of the asset. In your situation, you will be taken to have received the market value for your interest in the property on the date of transfer and the other party will be taken to have paid the market value to you. Whilst we acknowledge and appreciate your particular circumstances, the Commissioner does not have discretion to disregard any capital gain that you are liable for as a result of the transfer.