Edited version of private advice

Authorisation Number: 1051745073968

Date of advice: 25 August 2020

Ruling

Subject: Capital gains tax - main residence

Question 1

Are you required to pay Capital Gains Tax on your share of a property?

Answer

Yes.

Question 2

Can you be subject to only 25% of the capital gain based on the original deposit contributed to the purchase price?

Answer

No.

Question 3

Are you entitled to the 50% discount on your share of the CGT made on the sale of the property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

You purchased a property with your child a number of years ago.

You paid XX% of the purchase price and was on the title deed.

You did not live in this property as your main residence.

Your child lived in the property up until it was sold.

Your child was unable to get a bank loan on her own and you gifted her the 25% of the purchase price so that she was able to get a loan on the property.

The bank required that you be on the title deed as a joint tenant.

The bank was aware that you would not be paying the mortgage repayments.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Reasons for decision

The capital gains tax (CGT) provisions are contained in Part 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997). CGT is the tax you pay on certain capital gains you make. You make a capital gain or a capital loss when a 'CGT event' happens (section 102-20 of the ITAA 1997). The most common CGT event A1 happens when you dispose of the asset to another party (for example disposal of a dwelling) (section 104-10 of the ITAA 1997).

A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if you are an individual and the dwelling was your main residence throughout your ownership period (section 118-110 of the ITAA 1997).

Paragraph 41 of Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners explains that:

·         there are extremely limited circumstances where the legal and equitable interests are not the same

·         and that there is sufficient evidence to establish that the equitable interest is different from the legal title.

For CGT purposes and in the absence of evidence to the contrary, a property is considered to be owned by the person registered on the title. Evidence to the contrary may include documents that show the registered owner holds the property in trust for someone else.

In general, the CGT provisions place the liability for tax on the legal owner of a CGT asset.

The property was in your and your child's name as joint tenants.

There is no evidence that you held the property in trust for your child.

Therefore, you are the legal owner of the property.

As the legal owner of the property which was titled as joint tenants the CGT is calculated on your ownership share of 50%.

You may have given your child XX% of the property price but your legal ownership is 50% of the property and the CGT is calculated on the 50% and not the XX%.

You are required to declare 50% of the capital gain from the property in your tax return.

You are entitled to the 50% discount on your share of the capital gain as the property was held by you for more than 12 months.

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