1013121651475 | Legal database

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This edited version has been archived due to the length of time since original publication.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: 1013121651475

Date of advice: 9 November 2016

Ruling

Subject: Capital gains tax

Question

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

Answer

No.

This ruling applies for the following periods

Year ending 30 June 201X

The scheme commences on

1 July 201X

Relevant facts and circumstances

You purchased a property for the purpose of securing a main residence for your relative.

The property has never been used for income producing purposes.

You have not collected any rent from the property.

You have not paid any of the mortgage or deposit on the property.

Your relative has lived in the property as their own and has paid all occupancy costs, such as rates, as well as maintenance as if it were their own property.

Your name was only put on the deeds to satisfy the bank as your relative couldn't get a loan purely in their own name.

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 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 were not the beneficial owner of the property. Your relative has lived in the property and used it as their main residence. Your relative is the beneficial owner of the property. Therefore, when the property is sold your relative will be treated as having sold the property rather than you. Therefore, your relative will be liable for any CGT liability which may arise as a result of the disposal of the property. Consequently, you will not make a capital gain (or loss) when the property is sold.

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