Edited version of private advice

Authorisation Number: 1052206598798

Date of advice: 20 December 2023

Ruling

Subject: GST - legal and beneficial ownership

Question 1

Will the sale of the property result in a capital gains tax (CGT) event for you?

Answer

Yes.

Question 2

Is there discretion available that will allow the Commissioner to disregard the capital gains tax on the disposal of the property?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The property was purchased in 19XX to be the principal place of residence for Person A who is now deceased.

At the time the property was purchased, Person A had minimal savings and the mortgage repayments were beyond his capabilities.

You and Person B provided Person A with a loan to purchase the property. You were required to become signatory and debtor to the amount equal to a percentage of the mortgage.

You, Person B and Person A were all listed as co-owners on the title of the property for security of the loan, which was a bank requirement at the time.

The loan was provided to Person A as a gesture from yourself and Person B to assist Person A to purchase their home and neither of you ever intended for Person A to repay you for your contributions.

Neither you nor Person B have ever had any equitable rights in the property.

You resided in the property immediately after it was purchased for one and a half years. Person B resided in the property for several years. In addition to residing in the property, Person B provided financial contributions to living expenses.

You arranged for regular direct debit payments to occur to assist Person A with the purchase of the property.

When Person A's income increased, Person A made more than their required payments and settled the mortgage.

You were not repaid by Person A for the financial assistance you provided.

You did not consider yourself to own the property and you did not gain financially from the property.

Although correspondence was sent to the property addressed to yourself, Person B and Person A, you did not contribute to paying the utilities, rates, insurance, or any property improvement costs.

You do not have any copies of bank statements, utility bills or a mortgage agreement.

There is no written agreement outlining your arrangement. Instead, this arrangement was a verbal agreement that was made between you and your siblings.

No documents have been provided to indicate that it was a requirement of the mortgage provider for you and Person B to be co-mortgagors.

Person A made significant improvements to the property and incurred these expenses alone.

You were advised that your commitment to the bank's requirement was satisfied, and your name could be removed from any documents, however this did not occur.

Person A resided in the property until they passed away on XX/XX/20XX.

Person A's will stated that the property was to be left to their children.

After Person A passed away, you and Person B signed documents to arrange for a transfer of the property title to Person A's children so that they could have full ownership of the property.

Person A's children did not provide anything to any party to receive the property and all costs associated with the transfer were deducted from the deceased estate.

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 106-50

Income Tax Assessment Act 1997 section 108-5

Reasons for decision

Summary

CGT event A1 occurs when you dispose of a CGT asset. The beneficial owner of the CGT asset will be liable to determine the capital gain or loss from the CGT event. In your case, we determine that you have legal and beneficial ownership in the property and the property was not held on resulting trust. Therefore, any capital gain or capital loss you made from the transfer of your interest in the property cannot be disregarded and must be included in your income tax return in the relevant income year.

Detailed reasoning

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a CGT event happens to a CGT asset.

The property is a CGT asset under section 108-5 of the ITAA 1997.

Under section 104-10 of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset.

Legal v beneficial ownership

The legal owner of the property is recorded on the title deed for the property issued under that State's legislation. It is possible for legal ownership of property to differ from beneficial ownership. A beneficial owner is defined as a person or entity who is beneficially entitled to the asset. An individual can be a legal owner but have no beneficial ownership in an asset.

Where the beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property on trust for the beneficial owner.

It is the beneficial owner who is liable for any tax consequences resulting from a CGT event.

Resulting trusts

A resulting trust may arise where the contributions to the purchase cost of the property are not proportionate to the legal interests in the property. If an individual purchases a property, but the money to buy the property is provided by someone else, it is presumed that the property is held on trust for the benefit of the individual who provided the purchase money.

The presumption of a resulting trust can be rebutted by evidence of the parties intentions at the time of purchase.

Application to your circumstances

You and Person A and Person B purchased the property and are listed as legal owners of the property. Your share of the property title was never transferred to Person A. Although a Deed of Arrangement has been provided, this only demonstrates the intentions of yourself and Person B to transfer your interest in the property to Person A's children after Person A passed away. It does not indicate that you did not have a beneficial interest in the property.

As the agreement that was made outlining that you and Person B be included on the mortgage and be listed on the property title for Person A to purchase their principal place of residence was only a verbal agreement and it was not outlined in writing, there is no evidence to indicate that you did not intend to be the beneficial owner of the property.

In addition, as no mortgage documents have been provided, it is unable to be determined what the actual agreement was between you and your Person A and Person B.

Person A's will, dated XX/XX/20XX, was written sometime after the property was purchased and there is no evidence to support the existence of a trust or demonstrate the intentions of Person A at the time of purchase.

You, Person B and Person A all moved into the property immediately after the property was purchased, which makes it difficult to determine that the property was held on trust and indicates that each of you had legal and beneficial ownership.

As you have never disposed of the beneficial ownership of your interest in the property, CGT event A1 occurred when your legal ownership ended when you transferred your interest in the property to Person A's children.

Therefore, any capital gain or capital loss you made from the transfer of the property title cannot be disregarded and must be included in your income tax return in the relevant income year.

Where you are an Australian resident for tax purposes, you will be eligible for the 50% CGT discount where you have owned the asset more than 12 months.

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