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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012776070589

Ruling

Subject: Capital gains tax

Question

Will you and your spouse make a capital gain (or loss) when the property is sold?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commences on:

1 July 2014

Relevant facts and circumstances

Your relative attempted to purchase a property but the bank did not accept their loan application.

You and your spouse applied for a loan and were successful.

The property was purchased with these funds and you and your spouse appear on the title deed.

Your relative and their spouse have lived in the property since it was purchased.

Your relative has made all repayments to the loan and paid for all expenses (rates etc.).

Your relative intends to sell the property to purchase a new family home.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 120-20

Reasons for decision

Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset.

CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997).

Beneficial ownership

A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106.  A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset.

A legal owner is the individual who has their name on the legal documents associated with the capital gains tax (CGT) asset, an example would be the title deed for a property. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner of a CGT asset that is liable for capital gains tax upon sale of the assets.

In some cases, an entity may hold a legal ownership interest in property for another individual in trust.

In this case, we accept that you and your spouse were not the beneficial owners of the property. Your relative and their family have lived in the property and paid all the associated expenses. Your relative is the beneficial owner of the property. Therefore, when the property is sold you and your spouse will not be liable for capital gains tax.


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