Edited version of your written advice

Authorisation Number: 1051274693858

Date of advice: 30 August 2017

Ruling

Subject: Capital gains tax

Question 1

Will the capital gain you made on the disposal of property be disregarded under paragraph 104-10(5)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following period

Financial year ending 30 June 2017

The scheme commences on

1 July 2016

Relevant facts and circumstances

Your parent purchased a property (the property) in the 1950s.

The purchase was financed by a deposit provided by your parent and a loan from a relative. The legal title was held in your parent’s name only.

At the time of the purchase you were a young child.

The property was used in your parent’s business.

You and your siblings did unpaid work on the property.

Upon leaving school and obtaining outside employment, you gave a portion of your earnings to your parent. This payment continued until on or around the time you were married.

Your parent used these funds at their discretion.

Your parent passed away after 20 September 1985.

Their Will left the property to you and your siblings as tenants in common in equal shares and the transfer of title was registered after 20 September 1985 on this basis.

The property was sold in the 2017 financial year. You made a capital gain in respect of the disposal of your interest in the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 128-15

Income Tax Assessment Act 1997 Section 128-20

Reasons for decision

Summary

For capital gains tax (CGT) purposes, you are considered to have acquired the property after 20 September 1985. As such, the capital gain you made when you disposed of the property will not be disregarded.

Detailed reasoning

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). Real property is considered to be a CGT asset.

CGT event A1 happens if you dispose of your ownership interest in a CGT asset (section 104-10 of the ITAA 1997). You dispose of that interest if a change of ownership occurs from you to another entity, including a change in beneficial ownership.

CGT event A1 occurred when you disposed of your interest in the property in the 2017 financial year and you made a capital gain.

However, a capital gain you make under CGT Event A1 is disregarded if you acquired the asset before 20 September 1985 (paragraph 104-10(5)(a) of the ITAA 1997).

You assert that you acquired an ownership interest in the property from the time of its purchase in the 1950s because of the forgone wages and payment from your outside wages made to your parent.

Generally, the owner of the property is the person(s) registered on the title but it is possible for legal ownership to differ from beneficial ownership.

When a person purchases and pays for a property, but legal title is placed in another person’s name, a resulting trust will normally arise in favour of the contributor of the purchase money (subject to this presumption being rebutted in certain circumstances).

Where a property is purchased in the name of one person and another person makes a direct financial contribution to the purchase, the beneficial ownership of the property is presumed to be held in shares proportionate to the contributions made by each of them (again, subject to rebuttal). A contribution to the ongoing expenses of a property does not constitute a contribution to the actual purchase and does not establish a beneficial interest.

Private family arrangements like the one described, where the children of rural families provided unpaid labour and contributed to ongoing expenses, were common in the community at the time and indeed continue today. Such arrangements do not necessarily give the children any ownership interest in the property without direct evidence of financial contributions to the actual purchase price of the property.

From the time of purchase to the date of your parent’s passing, the legal title was held in your parent’s name solely. Your parent directly contributed the deposit and the remainder of the purchase funds were sourced from a loan obtained from a relative, which your parent was responsible for servicing.

There is no evidence to suggest that you made a direct financial contribution to the purchase of the property. Your understanding that upon your parent’s death, the property would pass to you and your siblings suggests that you did not expect to hold an ownership interest in the property until your parent’s passing. The property was, in fact, bequeathed to you as a beneficiary of your parent’s estate under their Will.

Where a CGT asset passes to you under a will as a beneficiary of a deceased estate, you acquire the asset for CGT purposes on the deceased’s date of death (section 128-15 of the ITAA 1997). You therefore acquired your ownership interest in the property after 20 September 1985, when your parent passed away. You did not have an ownership interest in the property at any earlier point in time.

As the date of acquisition of the asset was after 20 September 1985, the capital gain you made upon disposal of the property cannot be disregarded under paragraph 104-10(5)(a) of the ITAA 1997.

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