1 Does capital gains tax (CGT) event A1 occur under section 104-10 of the Income Tax Assessment Act 1997 (ITAA1997) when you dispose of your 50% interest in the Inherited Property if there is no contract when the change of ownership takes place?
1 Yes. 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. The time of the event is when you enter into the contract for disposal if there is no contract, when the change of ownership occurs. The CGT A1 event occurred when you transferred your 50% ownership interest the property. Question 2 Is the independent market valuation report you received for the property, reasonable in the circumstances to use for the calculation of capital proceeds? Answer 1 Yes. The report was conducted in accordance with your instructions by an independent valuer. A market valuation report is considered a reasonable method for determining the value attributable to the property as it provides an objective basis for calculating the capital gain or loss. Where on the disposal of an asset no money or property is received, the market value substitution rule contained in section 116-30 of the ITAA 1997 generally applies. Question 3 Is the capital gain calculated by reference to the full price agreed at the date of execution, irrespective of the fact that repayment is made by instalments? Answer 3 Yes.
When you transferred your 50% interest in the property the market value substitution rule contained in section 116-30 of the ITAA 1997 applies, such that you are taken to have received the market value of your ownership interest in the property at the time the CGT event occurs. As you disposed of your interest in the property within 2 years of the deceased's date of death. The property was the main residence of the deceased and not used to produce income the main residence exemption under section 118-195 of the ITAA 1997 applies to your 50% interest in the property. Question 4 Are the interest free instalments (including any lump sums) in consideration for your interest in the property to be treated purely as receipt of capital proceeds from a past CGT event? Answer 4 Yes. Taxation Ruling TR 96/23 Income tax: capital gains: implications of a guarantee to pay a debt Paragraph 47 provides that the test of what is a personal use asset requires a finding that the debt came to be owed for a primary purpose other than of gaining or producing income or in the carrying on of a business of the lender.
This definition of a personal use asset accords with section 108-20 of the ITAA 1997, which states a personal use asset includes a debt arising other than in the course of gaining or producing your assessable income or from your carrying on a business. The loan was made for no other reason than to provide financial assistance to a family member and is considered personal use assets. The interest free instalments to repay the loan are considered a debt to you arising from non-business activities that do not produce assessable income. This ruling applies for the following period : Year ended 30 June 20XX The scheme commenced on: 29 October 20XX
The deceased passed away on DD M 20XX. Under the will the beneficiaries inherited, in equal shares, the deceased's main residence. The property is less than 2 hectares. The property was not used to produce assessable income. One of the beneficiaries transferred their interest in the property to the other beneficiary as sole proprietor within 2 years of the deceased date of death. An independent valuation of the property, by a professional valuer was prepared. The beneficiaries entered into an interest free loan arrangement based on the independent valuation of the property. An initial deposit will be made. Monthly instalments will be made until the balance is cleared. No alternative benefit or compensation is provided in lieu of interest.
Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 section 108-20 Income Tax Assessment Act 1997 section 116-30 Income Tax Assessment Act 1997 section 118-195