When you share the ownership of a capital gain tax (CGT) asset with others, you need to establish what each owner’s share or interest in the asset is.
How to establish individual assets
Individuals who own an asset as tenants in common (TIC) may hold unequal interests in the asset. Each owner makes a capital gain or capital loss from a CGT event in line with their interest. For example, a couple could own a rental property as TIC with one having a 20% interest and the other having an 80% interest. When they sell the rental property (or any other CGT event occurs to it), they split the resultant capital gain or capital loss between them according to their legal interest.
For CGT purposes, joint tenants are treated as tenants in common having equal shares in the asset. Each party therefore has an equal share of any capital gain or capital loss from a CGT event. For example, a couple that owns a rental property as joint tenants splits the capital gain or capital loss equally when they sell the property.
Where spouses own assets as joint tenants and one of the spouse dies, under property law, the ownership interest of the deceased spouse is automatically transferred to the surviving spouse on the date of death. In this situation there will be no CGT consequences due to rollover relief. Furthermore, if the asset was acquired before 19 September 1985 (i.e. pre-CGT), the surviving spouse will hold the original half share as a pre-CGT asset and the half interest of the deceased spouse as a post-CGT asset.
If you own an asset 100% and decide to transfer a 50% interest to your wife to become joint tenants, this triggers a CGT event which results in a capital gain. As you do not receive any capital proceeds in relation to this event, it is deemed that you receive capital proceeds equal to the market value of the CGT asset. Consequently, you may have a capital gains tax liability in spite of no money or other consideration changing hands.
In summary, a change in legal ownership of a CGT asset is the main factor in determining a taxpayer’s liability for CGT.
Our tax accountants at the Quinn Group can provide specialised advice on CGT. You can contact the team at The Quinn Group on 02 9223 9166 or fill out an online enquiry.