Private ruling: Wind-up of time share resort
Published: April 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Does the disposal of your share in the timeshare fund give rise to a capital gains tax (CGT) event? | A1: Yes.

Relevant facts and circumstances: You and your spouse signed and paid for the use of a number of holiday villas per year in a timeshare fund. The date of the transaction was when it was accepted by the manager. The total cost you paid was for the right to use the villas for private use. You had the right to a fixed week of the year and a swing week. The time share resort afforded you regular holidays and you paid the balance off through a loan over the period of the loan which was a number of years. You received your certificates of titles once the loan had been paid. Financially the resort was not performing well and at a special annual general meeting it was decided to sell the resort and pay out what was left after all outgoing costs had been settled. A receiver was appointed to manage the liquidation, the sale and pay the proceeds of whatever was leftover to members as per their share less any fees owed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 108-5

Reasons for decision: Summary: A capital gain or capital loss may arise if a (CGT event) happens to a capital gains tax asset (CGT asset) that you own. Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT asset is any kind of property, or a legal or equitable right that is not property. Under section 104-10 of the ITAA 1997, the disposal of a CGT asset gives rise to CGT event A1. The disposal of a CGT asset takes place if a change of ownership occurs from the taxpayer to another entity, whether because of some act or event or by operation of law. The time of the event is the time you enter into a contract for the disposal of the asset, or if there is no contract, the time at which ownership changes. In your case, a decision was to sell the resort and after the sale you received your share of the proceeds once all relevant costs have been deducted. Your shares in the resort is considered to be a CGT asset for the purposes of section 108-5 of the ITAA 1997, and their sale constitutes a disposal under section 104-10 of the ITAA 1997. This disposal gives rise to CGT event A1, and will result in either a capital gain or capital loss being made. In certain situations, a capital gain or capital loss made as a result of a CGT event can be disregarded or rolled over. However, there are no provisions in the ITAA 1997 that allow capital gains tax payable on the sale of a share in a time share resort to be disregarded. Therefore, any capital gain or capital loss that you make on the sale of your shares in the resort will be subject to capital gains tax in the subsequent year of income.