Edited version of private advice

Authorisation Number: 1052125239667

Date of advice: 2 June 2023

Ruling

Subject: CGT - legal v beneficial ownership

Question

Will CGT event A1, or another CGT event, happen when you transfer your legal ownership interest in the property to the deceased estates?

Answer

No. Having considered your circumstances and the relevant factors relating to your situation, the Commissioner accepts that although you were the legal owner of the property, it was never intended for you to have any beneficial ownership of the property. Therefore, you will not have a CGT event A1 or any other CGT event occurring when your legal ownership ends.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The property was purchased on XX X 19XX.

You, your father and mother purchased the property as tenants in common. Each of the title owners had a X/X interest in the property.

You were only included on the title as a requirement of the lender. The real ownership was held by your mother and father at the time the loan was established.

Your mother, after your father's passing was listed on the title as owning X of the X shares in the property.

Your mother passed on X August 20XX. Probate was granted XX X 20XX.

You and your brother were appointed executors under the Will.

It is highlighted in the Will of The Deceased you have not made any loan repayments in relation to the property.

A copy of the rental schedule from the Real Estate Agent for XX/XX/20XX to XX/0X/20XX is attached showing the Deceased as the property owner and recipient of the rental payments.

A copy of the Bank statement for the Deceased for the Bank for X XX 20XX - XX June 20XX shows rental payments made directly to the Deceased is also attached.

Extract from the Will dated XX X 20XX:

Power to Appropriate:

My executors shall Note that at the date of this Will:

a)            I own The Property with my husband as joint tenants in relation to X out of X shares and my son as a tenant in common as to X out of the X shares.

b)            The property is free from any mortgage or encumbrance.

c)            When I purchased the property on XX November 19XX, I included my son as a co-owner of the property to comply with the financier's requirements as to servicing of the loan; and

d)            X has not made any loan repayments on the property.

You did not have any involvement in the property either prior or after signing the loan documents.

You did not contribute to the property in any way other than initial loan approval.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 120-20

Reasons for decision

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.

Legal

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, it is possible for legal ownership to differ from beneficial ownership. A beneficial owner is a person or entity who is beneficially entitled to the income and proceeds from the asset. An individual may hold a legal ownership interest in a dwelling for another individual in trust.

It is, accordingly, the beneficial owner of the CGT asset who is liable to declare the capital gain or loss from the event. As noted by Jagot J, in Ellison & Anor V Sandini Pty Ltd & Ors and further in FC of T v Sandini Pty Ltd & Ors, 2018 ATC 20-651, for these purposes the beneficial owner for CGT event A1 purposes is identified under rules of equity:

"...To be a beneficial owner the person must have rights which a court of equity would enforce involving full dominion over the asset;..."

'Rights which a court of equity would enforce' include those governed by equity principles for situations where beneficial ownership may be separated from legal ownership. In situations where legal title may differ from beneficial ownership for property, intent at start of ownership is a key element needing to be established for equity principal application purposes. As noted by Gibbs CJ, in Calverley v Green [1984] HCA 81:

"...3 Where a person purchases property in the name of another, or in the name of himself and another jointly, the question whether the other person, who provided none of the purchase money, acquires a beneficial interest in the property depends on the intention of the purchaser...9. .... Where one person alone has provided the purchase money it is his or her intention alone that has to be ascertained....12. The extent of the beneficial interests of the respective parties must be determined at the time when the property was purchased..."

In these cases, it will be the beneficial owner of a CGT asset that is liable for any capital gains tax attributable, upon sale of the assets.

The concept of beneficial ownership is also explained in Taxation Determination TD 2017/11. 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.

Your circumstances

With regards the ownership of the property you have stated:

•                     you, your father and mother purchased the property as tenants in common. Each of the title owners had a X/X interest in the property.

•                     you were only included on the title as a requirement of the lender.

•                     it was always intended the real ownership was to be held by your mother and father at the time the loan was established.

•                     you did not have any involvement in the property either prior or after signing the loan documents.

•                     you did not contribute to the property in any way other than initial loan approval.

You have further confirmed this position by providing:

•                     X months of the rental schedule from the real estate agent.

•                     X months of your mother's bank statements, showing they were the sole recipient of the rent payable.

•                     the Will of the deceased stating, you did not make any loan repayments regarding the property and were only included to meet the financers requirements with regards servicing.

Considering the circumstances, it may be accepted that the legal and equitable interests in the dwelling are not the same. While you were on the title, the deceased can be considered to have been the sole beneficial owner of the dwelling for the purposes of applying CGT event A1. The deceased's will be considered for any application of the CGT as beneficial owner on disposal of the property.

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