Edited version of private ruling

Authorisation Number: 1011569673942

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Ruling

Subject: Capital gains tax (CGT)

Can you disregard any capital gain or capital loss from the sale of the property?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

Ttheir 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, ttheir ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Your relative received a dwelling from their parent and used it as their main residence.

Your relative, due to ill health, transferred the title of the dwelling from their name into the names of you and your partner, each having a 50% interest on date A, after 20 September 1985.

Your relative continued to reside in the dwelling as their main residence until they were transferred to a nursing home.

Your relative lived in the nursing home for several months before passing away on date B. The dwelling was vacant during the period they were in the nursing home.

At no time did you or your partner exercise any control over the dwelling until after the death of your relative. You did not use the dwelling as security for any loans.

The dwelling was not used to produce income.

The property is less than two hectares.

The dwelling was sold on date C.

You and your partner signed an acknowledgement of trust (already own asset) document confirming and acknowledging that:

· On date A you and your partner acquired the dwelling (Trust Asset)

· From date A that you and your partner hold the whole of the Trust Asset in the capacity of bare trustee for and on behalf of and for the sole benefit of your relative

· You have no beneficiary interest in the Trust Asset.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20.

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Section 106-50.

Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision

You can make a capital gain or capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).

CGT event A1 happens when you dispose of a CGT asset to someone else. In your situation, CGT event A1 occurred on date A when your relative transferred the dwelling from their name into the names of you and your partner. You each acquired a 50% interest in the property and became the legal owners.

When considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the beneficial owner of the asset.

In some cases, an individual may hold legal ownership interest in a property for another individual in trust. A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106 as a person or entity who is beneficially entitled to the income and proceeds from the asset.

If the beneficiary of a trust is absolutely entitled to a CGT asset as against a trustee, any act done by the trustee is treated as if it was carried out by the beneficiary (section 106-50 of the ITAA 1997). This situation would arise if there was a bare trust in existence.

Bare Trust

While the scope of the phrase absolutely entitled to an asset as against the trustee of a trust in this section is unclear, it is clear that it applies at least to bare trusts.

A trust is a bare trust where the trustee has no interest in the trust assets other than that existing by reason of the office of trustee and the holding of the legal title, and who never has had active duties to perform or who has ceased to have those duties with the result that in either case the property awaits transfer to the beneficiaries or at their direction (see Herdegen & Anor v. FC of T 88 ATC 4995; (1988) 20 ATR 24).

In your situation, it is considered that you and your partner held the property in trust for your relative as:

· you and your partner did not pay for the purchase price of the dwelling as your relative inherited it from their parent

· at the time of transfer into both of your names, your relative was living in the dwelling and continued to live there

· neither of you ever lived in the dwelling

· neither of you paid for any outgoings associated with the dwelling

· at no time did you consider the dwelling to be yours

· your relative used the dwelling as their main residence. Even when he lived in a nursing home, the dwelling was vacant

· you and your partner at no time exercised any control over the dwelling until after the death of your relative

· you have provided documentary evidence stating that you and your partner, from the date the dwelling was legally transferred into your names, held the dwelling in the capacity of bare trustee for, and on behalf of, and for the sole benefit of your relative.

It is therefore concluded that your relative was absolutely entitled to the property as against you and your partner as trustees of the trust. As your relative was absolutely entitled to the property, section 106-50 of the ITAA 1997 will apply to treat any act done by you and your partner as an act done by your relative.

As there is considered to be no change in ownership of the property, no CGT event occurred as a result of the transfer of title from your relative's name to the names of you and your partner on date A.

Sale of dwelling

CGT event A1 happened on date C when the dwelling was sold by you and your partner. Certain exemptions are available under the CGT provisions, one of which is the main residence exemption.

Main residence exemption

As a general rule, a person can disregard any capital gain or capital loss realised on the disposal of a dwelling if:

1. the person is an individual

2. the dwelling was the person's home for the whole period they owned it, and

3. the dwelling was not used to produce assessable income (section 118-110 of the ITAA 1997).

In your case, your relative used the dwelling as their main residence for the whole period he owned it and did not use it produce assessable income. As he would have been entitled to the main residence exemption had they sold the dwelling and not incurred any CGT liability, you and your partner in your capacity as trustee will also not incur any CGT liability as a result of the sale of the dwelling.

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