Edited version of your written advice

Authorisation Number: 1013120299033

Date of advice: 10 November 2016

Ruling

Subject: Capital gains tax relating to a deceased estate

Question 1

For the purposes of assessing a capital gain realised upon sale of the property, did the estate hold a half share of the property as the deceased was a beneficiary of a resulting trust?

Answer

Yes

Question 2

Will any capital gain or loss made upon disposal of the property be disregarded?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 20YY

The scheme commences on

1 July 20XX

Relevant facts and circumstances

The deceased and their child purchased a property, each contributing half of the purchase price.

The deceased's child was registered on the title as the sole legal owner of the property. It was not intended that the child would be the sole beneficial owner of the property.

The property was the deceased's main residence from the time of purchase until their death in 20XX.

The deceased paid all expenses in relation to the property.

The deceased's child never occupied the property.

The deceased's child received no income from the deceased's use of the property.

In their will, the deceased gave the residuary of their estate to their children in equal shares. The residuary included a 50% share in the property.

The property is now under contract for sale. The settlement date is within two years of the deceased's death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 118-195(1)

Reasons for decision

Question 1

You make a capital gain or capital loss if a CGT event happens to a CGT asset under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). Property is considered to be a CGT asset. Under section 104-10 of the ITAA, CGT event A1 occurs if you dispose of your ownership interest in a CGT asset. You dispose of that interest if a change of ownership occurs from you to another entity. The timing of the event is when you enter into the contract for the disposal or if there is no contract, when the change of ownership occurs.

It is possible for legal ownership to differ from 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 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.

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. Where an individual purchases and pays for a property but legal title is transferred to another person at their direction, if that person is a stranger, the presumption of resulting trust arises and the property is held in trust for them.

However where the property is transferred between spouses or from parents to children, the presumption of resulting trust is replaced by the presumption of advancement which deems the purchase to be prima facie intended to advance the interests of the family members (that is, an absolute gift).

The consequence of the presumption of advancement being upheld is that the parties will hold their equitable interests in the property in the same proportions as their legal interests unless they can rebut the presumption of advancement.

Application to your circumstances

In your situation the presumption of advancement is rebutted on the following grounds:

a) the deceased provided half of the purchase monies and their child provided the other half;

b) the deceased occupied the property at all times;

c) the deceased paid for all the household expenses;

d) the deceased's child received no income from the property; and

e) the deceased left a half share of the property in their will.

Therefore it has been determined that a resulting trust did exist with regards to the property and the presumption of advancement is rebutted. The deceased's child acted as trustee in relation to a half share in the property with the deceased being the beneficiary.

Accordingly, the estate is liable for capital gains tax on a half share of the property.

Question 2

Subsection 118-195(1) of the Income Tax Assessment Act 1997 (ITAA 1997) allows the trustee of a deceased estate to disregard any capital gain or loss made from a CGT event that happens in relation to a dwelling that a deceased person acquired on or after 20 September 1985 if:

a) the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income; and

b) the trustee's ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner.

In your case, the property was the deceased's main residence just before their death and was not used to produce assessable income. The property has been disposed of within 2 years of their death, and accordingly, any capital gain or loss can be disregarded.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).