Edited version of your written advice

Authorisation Number: 1051205238956

Date of advice: 24 March 2017

Ruling

Subject: Main residence exemption

This ruling applies to the beneficiaries of the trust and to the trustee and to any future trustees, for as long as the ruling remains current.

Question

Will the sale of your home be exempt from capital gains tax?

Answer

Yes

This ruling applies for the following periods:

Income year ending 30 June 19AA

The scheme commences on:

1 July 2017

Relevant facts and circumstances

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

The property (dwelling) is located in State X and was purchased in 19XX.

Your children were each recorded on the title as holding an estate in fee simple in remainder as tenants in common, subject to a life estate granted to you. You are the sole proprietor of the life estate interest.

You paid the deposit and remaining purchase price of the property, as well as stamp duty and fees associated with the purchase using your own money.

You have been the sole resident of the property since settlement of the purchase and the property has been your main residence for the entire ownership period.

You have personally met all expenses relating to council rates, water, utilities and insurance for the property.

You have paid for all costs relating to the maintenance and improvement of the property throughout the ownership period.

You have provided a trust deed that states your children hold the beneficial interest in the property on trust for you.

You will sell the dwelling in the income year ended 30 June 19AA

You have provided the following documents, which should be read in conjunction with, and form part of this private ruling:

● Application for private ruling (and attachments) dated 19ZZ

● Statutory Declaration dated 19ZZ

● Title Search dated 19ZZ

● Transfer of Land Certificate dated 19XX

● Utility Accounts

● Annual land valuation and rate notices dated between 19XX to 19YY

Relevant legislative provisions

Income Tax Assessment Act 1997 section 106-50

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

Summary

You will be entitled to the full main residence exemption when the dwelling is sold because it is your main residence. The legal owners of the dwelling hold the beneficial ownership of the property on trust for you and you are absolutely entitled to the asset as against the trustee. The capital gains tax provisions will therefore apply to the sale of the property as if you had sold it yourself.

Detailed reasoning

Main residence exemption

Generally, you may disregard a capital gain or loss that happens in relation to CGT asset (dwelling) where you are an individual, the dwelling was your main residence throughout the ownership period, and you did not acquire your ownership interest in the dwelling as either a beneficiary or the trustee of a deceased estate.

Trusts

There may be three kinds of trusts: express, constructive or resulting.  While trusts can be created orally, all State Property Law Acts contain provisions derived from the Statute of Frauds that preclude the creation or transfer of interests in land except if evidenced in writing. 

However, it is possible for the legal ownership of a property to differ from the beneficial ownership. Where this is the case, a trust situation occurs. In these cases the legal owner is the trustee of the asset.

Where a beneficiary of a trust is absolutely entitled to a CGT asset as against a trustee, any act carried out by the trustee is treated as if it was carried out by the beneficiary. In these cases, as an example, if the trustee disposes of a CGT asset, then it is seen that the beneficiary was the one who actually disposed of the asset, not the trustee.

Absolute entitlement

The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction.

Taxation ruling 2004/D25 explains when a beneficiary is considered to be absolutely entitled to an asset of a trust.

Generally, if there is more than one beneficiary with interests in the trust asset, then it will usually not be possible for any one beneficiary to be absolutely entitled to it, unless the asset is fungible. Land is not considered to be a fungible asset.

Application to your circumstances

In conclusion, you are not the legal owner of the dwelling. The legal ownership interest is held by your children. The property is not the main residence of any of them, so they are not entitled to apply the main residence exemption on the sale of the property.

In your case, your lawyer holds a valid trust that confirms you are the only beneficiary of the trust asset (the dwelling). As such, you hold a vested and indefeasible interest and therefore, absolutely entitled to it.

Because you are absolutely entitled to the asset, the CGT provisions apply as if you had sold the dwelling yourself. Accordingly, you are entitled to apply the main residence exemption to the sale of the property.

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