Private ruling: CGT on the purchase price of a parent's property (unit)
Published: November 2011
Ruling period: 1 July 2010 to 16 August 2019

Ruling: Question and Answer | Will you be exempt from Capital Gains Tax on the purchase price of your parent's unit after the deferred period of eight years? | Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. After 20 September 1985 your parent purchased a unit in a retirement village and elected it to be their main residence. On xx xx xx your parent entered into a contract of repurchase, for the unit, with the retirement village owners. On xx xx xx your parent passed away. In a letter, dated xx xx xx, the retirement village owners gave you two options of purchase for the unit, being; o repurchase the unit from you, payable after a deferred period of 8 years, a guarantee is offered and no interest paid, or o an upfront amount payable to you when the unit is re-released. On xx xx xx the retirement village owners would have provided you with a Bank Guarantee for repurchase. You have agreed to an extend the due date for the receipt of the Bank Guarantee till xx xx xx pending Australian Taxation Office private ruling. The settlement date for the unit will be in eight years time. You intend to take up option (a).

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 104-15 | Income Tax Assessment Act 1997 Section 118-195 Reason for Decision | Capital Gains Tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT even happening | The timing of a CGT event is important because it determines in which year you report your capital gain or capital loss. | If you dispose of a CGT asset to someone else, the CGT event happens when you enter into the contract for disposal. If there is no contract, the CGT event generally happens when your stop being the asset's owner. | CGT event B1 (about use and enjoyment before title passes) in section 104-15 of the Income Tax Assessment Act 1997 (ITAA 1997) happens if you enter into an agreement under which the right to the use and enjoyment of a CGT asset you own passes to another entity and title in the asset will or may pass to the other entity at the end of the agreement. The time of the event is when the other entity first obtains the use and enjoyment of the asset. | You intend to enter into a contract for repurchase where use and enjoyment of your parent's unit passes to the retirement village, on or before xx xx xx and settlement of the unit will be in eight years time. | Therefore CGT event B1 will happen when the unit passes to the retirement village on or before xx xx xx. | Under section 118-195 of the ITAA 1997 for property acquired by the deceased, on or after, | 20 September 1985 which was the deceased's main residence just before they died and at the time was not being used for the purpose of producing assessable income, a full exemption will be available if; | The ownership interest ends within two year of the deceased's death. | The B1 event will happen within two years of the date of death of the deceased and the unit was acquired after 20 September 1985, any capital gain or capital loss that may arise when the retirement village takes possession of the unit will be disregarded. | Under section 104-10 of the ITAA 1997 the disposal of a CGT asset causes a CGT event A1 to occur. However, if more than one CGT event happens, you use the one that is most specific to your situation. | Therefore, as CGT event B1 will have already occurred prior to the settlement date of xx xx xx, CGT event A1 will not happen and you will not make a capital gain or capital loss when the settlement occurs.

Reasons for decision: Summary: Capital Gains Tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT even happening The timing of a CGT event is important because it determines in which year you report your capital gain or capital loss. If you dispose of a CGT asset to someone else, the CGT event happens when you enter into the contract for disposal. If there is no contract, the CGT event generally happens when your stop being the asset's owner. CGT event B1 (about use and enjoyment before title passes) in section 104-15 of the Income Tax Assessment Act 1997 (ITAA 1997) happens if you enter into an agreement under which the right to the use and enjoyment of a CGT asset you own passes to another entity and title in the asset will or may pass to the other entity at the end of the agreement. The time of the event is when the other entity first obtains the use and enjoyment of the asset. You intend to enter into a contract for repurchase where use and enjoyment of your parent's unit passes to the retirement village, on or before xx xx xx and settlement of the unit will be in eight years time. Therefore CGT event B1 will happen when the unit passes to the retirement village on or before xx xx xx. Under section 118-195 of the ITAA 1997 for property acquired by the deceased, on or after, 20 September 1985 which was the deceased's main residence just before they died and at the time was not being used for the purpose of producing assessable income, a full exemption will be available if; The ownership interest ends within two year of the deceased's death. The B1 event will happen within two years of the date of death of the deceased and the unit was acquired after 20 September 1985, any capital gain or capital loss that may arise when the retirement village takes possession of the unit will be disregarded. Under section 104-10 of the ITAA 1997 the disposal of a CGT asset causes a CGT event A1 to occur. However, if more than one CGT event happens, you use the one that is most specific to your situation. Therefore, as CGT event B1 will have already occurred prior to the settlement date of xx xx xx, CGT event A1 will not happen and you will not make a capital gain or capital loss when the settlement occurs.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.