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Authorisation Number: 1012076105076

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Subject: capital gains tax - ownership interest - dwelling - disposal - capital gain

Question: Will you be liable for any capital gains tax on the disposal of the dwelling?

Answer: Yes

This ruling applies for the following period

Income year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

Your parents acquired a dwelling before 20 September 1985 for the exclusive use of your sibling.

Parent A passed away a number of years later and their ownership interest in the dwelling was willed to your surviving parent, Parent B, resulting in them having a 100% ownership interest in the dwelling.

After a number of years, renovations were required for the dwelling. A mortgage was taken out to source the necessary funds, with your name put on the title of the dwelling as a condition of the mortgage provider. The loan was equal to 50% of the value of the property.

You became an owner of a 50% interest in the dwelling.

Parent B prepared their last will which outlined that under the will the dwelling would be held in trust for your sibling until their death.

Your sibling moved into your family dwelling with you and your spouse and the dwelling was disposed of.

Parent B passed away after the disposal of the dwelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

Legal ownership

Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening to a CGT asset. The most common event, CGT event A1, occurs when your ownership interest in a CGT asset is transferred to another entity.

When considering the disposal of your interest in a property, the most important element in the application of the CGT provisions is ownership. 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 for legal ownership to differ from beneficial ownership.

The Australian Taxation Office considers that there are extremely limited circumstances where the legal and equitable interests are not the same if they differ there is sufficient evidence to establish that the equitable interest is different from the legal title.

In some cases, an individual may hold legal ownership interest in a dwelling for another individual in trust.  A beneficial owner is defined as a person or entity who is beneficially entitled to the income and proceeds from the asset.

We have considered the facts that you have provided in order to determine whether a trust has been created in relation to the dwelling and our determinations are as follows:

· An express trust is one intentionally created by the owner of property in order to confer a benefit upon another. It is created by express declaration, which when relating to the transfer of interests in land, must be evidenced in writing. In this case, you do not have any documentary evidence that you had held the 50% ownership interest as trustee for Parent B. The absence of such a document means that an express trust cannot exist.

· A constructive trust is a trust imposed by operation of law. The facts of this case do not indicate the existence of a court order, and therefore it can be concluded that a constructive trust does not exist.

· A resulting trust, sometimes called an implied trust, is a trust that arises by operation of law in favour of the creator of some prior trust or other interest in certain circumstances; an example would be where a person buys land but places the title in the name of a third party.  In your case, there was no prior trust. Given this, there is no implied or resulting trust.

In your case, we have examined the possible existence of a trust, and explored avenues such as express trusts, constructive trusts and resulting trusts. From the facts presented, it has been found that no trust exists.

While Parent B's will provided that the dwelling would be held in trust for your sibling until their death, the dwelling was disposed of prior to Parent B's death. Therefore, the provisions of the will were not in effect when the dwelling was disposed of, and no trust over the dwelling was in existence when it was disposed of.

You have not provided any evidence to support that you were not a joint owner of the property. Your name on the title of the dwelling indicates that you held an equitable and legal ownership interest in a share of the dwelling.

Therefore, for CGT purposes you are viewed as having disposed of your 50% ownership interest in the dwelling when it was disposed of. As there are no exemptions available in this situation to allow you to either fully or partially disregard any capital gain made on the disposal of your 50% ownership interest in the dwelling, you must include any capital gain made on the disposal of your interest in the dwelling in your 2010-11 income tax return.

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