Does an arrangement between the taxpayer's and X (parent of X) that title will pass to them upon the passing of X constitute as an agreement that would satisfy the requirements of CGT Event B1?
No. This ruling applies for the following periods : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX
X (X) is the legal owner of the property situated at X (Certificate of Title Volume X Folio X) (the property). X is the parent of X. X acquired the property from their parent on or around DDMMYYYY. X did not wish to rent out the property. X parents lived in the property until the death of their parent in YYYY, and in YYYY their parent moved elsewhere. X wanted X and X to have the property. In YYYY X had a verbal arrangement with X and X that they could live in the property as their own. They could undertake renovations and maintenance as they saw fit. Since YYYY, when X and X moved into the property, they have paid all outgoings such as rates, insurance and other miscellaneous costs to improve and maintain the property. Various renovations and capital works were undertaken at the property while X and X have lived there. X Will dated DDMMYYYY, at clause X provides: "To hold my house and land containing X ha comprised in Certificate of Title Volume X Folio X for X absolutely if they shall survive me."
In YYYY when X and X moved into the property, and again in YYYY when X parent passed away, the family was aware that the legal title to the property remained in X name however they did not wish to incur the expense to transfer the legal title of the property to X and X.
Income Tax Assessment Act 1997 subsection 102-25(1) Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 section 104-15 Income Tax Assessment Act 1997 subsection 104-15(1)
Summary CGT event B1 will not happen if, under a loose family arrangement, title to an asset may pass at an unspecified time in the future. The passing of X is an unspecified time in the future. The instructions contained in X Will does not constitute a contemporaneous formal agreement from X when the taxpayer's moved into the property to satisfy CGT event B1 occurring. Detailed reasoning There is a special rule in the CGT provisions which provides that if more than one CGT event can apply in a particular situation, the event you use is the one that is most specific to your situation (subsection 102-25(1) of the ITAA 1997). There are two CGT events which may apply in circumstances where the title to an asset changes ownership. These events are CGT event A1 in section 104-10 of the ITAA 1997 and CGT event B1 in section 104-15 of the ITAA 1997. CGT event A1 happens if you dispose of a CGT asset. CGT event B1 happens if you enter into an agreement with another entity 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 or before the end of the agreement (subsection 104-15(1) of the ITAA 1997). As per Taxation Determination TD 1999/78 Income tax: capital gains: for the purposes of CGT event B1, what is meant by the expression 'at the end of an agreement' in section 104-15 of the Income Tax Assessment Act 1997 ? at paragraph 2, an agreement may come to an end for the purposes of CGT event B1 either: (a) at the end of the period for which the agreement runs, or (b) during that period. Example 1 at paragraph 7 of TD 1999/78 also explains: "Perry allows his son use and enjoyment of the family holiday house as and when his son wishes with an expectation that sometime in the future, when his son can afford to buy it, the title of the house will pass to him. This type of loose family arrangement does not fall within the CGT event B1 because there is no agreement under which title will or may pass and because there is no specific point in time of particular occurrence when the arrangement will end." ATO Interpretive Decision ATO ID 2005/216
Income Tax - Capital gains tax: CGT event B1: right to use property before title passes shows that for CGT event B1 to happen, the relevant agreement must be one under which title will or may pass at the end of a specific period or on the occurrence of a specific event. CGT event B1 will not happen if, under a loose family arrangement, title to an asset may pass at an unspecified time in the future. In your case, the instructions provided for in X Will is for an unspecified time in the future and does not constitute a formal agreement for the purposes of triggering CGT event B1 in YYYY when X and X moved into the property owned by X.