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Edited version of private ruling
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Ruling
Subject: Capital gains tax/Ownership/Capital loss
Do you include the capital loss from the disposal of your spouse's investment property in your tax return?
No.
Relevant facts and circumstances
You and your spouse decided to retire as self funded retirees.
Prior to retiring you wanted to reduce or eliminate all of your debts.
You own a number of investment properties.
You were required to sell a few of your investment properties.
You made a capital gain.
Your spouse owned a half share in another investment property.
Your spouse obtained a bank loan to fund the purchase of their ownership interest. You acted as guarantor and your family home was used as security.
Your spouse sold their ownership interest in the property and they made a capital loss on the disposal.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 102-20
Reasons for decision
When considering the disposal of your spouse's ownership interest in their investment property the most important element in the application of the capital gains tax (CGT) provisions is ownership.
Ownership determines who includes the capital gain or a capital loss in their tax return.
Therefore, it must be determined who is the legal and/or beneficial owner of the property. In absence to the contrary, property is considered to be owned by person(s) registered on the title, but it is possible, in limited circumstances, for legal ownership to differ from beneficial ownership.
Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property in trust for the beneficial owner.
Trusts fall into three categories: express, implied or constructive. Given there has been no court order or any trust deed created, express or constructive trusts have no application in this case. Furthermore, the facts provided indicate that a resulting or implied trust also does not exist.
In this situation, your spouse was a legal and beneficial owner of the investment property. You were not a legal or beneficial owner of the property. Consequently, you cannot include the capital loss made from the disposal of your spouse's investment property in your tax return thereby reducing your capital gain.
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