Edited version of private advice

Authorisation Number: 1052154958411

Date of advice: 10 August 2023

Ruling

Subject: CGT- beneficial ownership

Question

Will CGT event A1 under section 104-10 of the Income Tax Assessment Act 1997 happen to Person A when the residential property is sold?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person A is in the Navy.

For a period of approximately 10 years, you usually lived on the Naval bases you were posted at.

You also rented a defence home for a brief period during this time.

You stored your personal belongings not required to have with you while you were working at your mother's (Person B) house.

You would visit Person B wherever she was living while you were on leave from the Navy.

In 20XX, Person A and Person B purchased a home while you were still living in a naval base.

The purchase price of the property was $X.

Person A borrowed less than half of the value to help with the purchase.

Person B paid the remaining amount, they also paid the conveyancing fees for the sale of the property.

Because Person A took out the loan, their name was included on the title of the property as a requirement of the financing. Person A and Person B decided to have Person A's solely on the title because if anything were to happen to Person B, Person A would automatically become the owner.

Person A and Person B have always considered the property to be Person A's home, Person A has always been the sole occupant, has never paid rent, they have paid all the bills and running costs for the home.

Person A makes the repayments on the loan, which is in their name only. Person A has never claimed any income or deductions in their income tax return in regards to the property.

Person A gave Person B power of attorney for the main purpose of being able to deal with the administration of the property, for example, contacting the council.

In 2018, Person A purchased a residential property with your partner.

Recently, Person A and Person B have decided to sell the property so Person B can relocate to live closer to you and other family due to Person B's health issues.

When the property is sold, Person A will receive the unpaid balance of the loan from the sale proceeds, and the remainder will go towards a new home for Person B.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

Capital gains tax (CGT) is the tax you pay on any capital gain you make. You make a capital gain as a result of a CGT event (section 102-20 of the ITAA 1997).

CGT event A1 happens if you dispose of a CGT asset (subsection 104-10(1) of the (ITAA 1997)).

You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner (subsection 104-10(2) of the ITAA 1997).

A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the CGT asset. A person's legal interest in a property is determined by the legal title to that property under the land law legislation in the state or territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation. However, it is possible for legal ownership to differ from the beneficial ownership.

In this case, while both Person A and Person B consider the property to be Person B's home, and Person B is financially responsible for the ongoing maintenance of the house. However, Person A is solely on the title of the property and therefore receives the benefit of the property not having to pass through another entity (for example, an estate). Therefore, Person A is a beneficial owner of the residential property.

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