Edited version of private advice

Authorisation Number: 1052414550191

Date of advice: 7 July 2025

Ruling

Subject: CGT - legal v beneficial

Question 1

Did capital gains tax (CGT) event A1 happen to your interest in the Property on the Separation date?

Answer 1

No.

Question 2

Did CGT event A1 happen to you when the Property was sold?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX July 19XX

Relevant facts and circumstances

In 19XX, you and your then spouse purchased a property (the Property) as joint tenants.

You lived in the Property as your main residence.

In late 19XX you moved out and the Property became an investment property.

A number of years later you and your spouse moved back into the Property.

In XXX 20XX you and your spouse separated (the Separation Date), divorcing a few years later.

You did not seek court orders relation to the division of marital assets and, therefore have no formal documentation.

You have stated that you chose to enter an informal arrangement (the Arrangement) whereby you would each have one of the two marital properties (The Property and Property B), rather than divide the marital assets through a binding financial arrangement, consent orders, or seeking court orders pursuant to the Family Law Act 1975 regarding the separation of your properties.

You moved out of the Property. Your spouse continued to live there as their main residence.

You stated that the Arrangement has been in place and mutually acknowledged by both parties since the Separation Date, however it is not documented.

There was no written document or record made or created in or around the Separation Date in 20XX in relation to the division of assets.

You have provided the following evidence to support the Agreement:

•                     An email dated XX XXX 20XX that you sent to your friend. In the email you tell your friend that your relationship with your spouse is over and that they planned to move into your investment property. It also advised them that your spouse had started talking about their plans for the place, e.g. new carpet.

•                     An email dated XX XXX 20XX detailing the change of direct debit information for the home loan in the names of you and your spouse for Property B. The direct debits were to be taken from an account in your sole name.

•                     A Settlement Statement for the sale of Property B in XXX 20XX which indicates that the sale was from 'Party A to Party B' with all proceeds from the sale of Property B were to be transferred solely to you, with no share to your spouse.

•                     Copies of text messages between yourself and your spouse between XXX and XXX 20XX discussing your need for your spouse to transfer the loan for the Property to their own name, to enable you to refinance your debts. The messages from your spouse confirm that they were trying to transfer the Property and were in the process of doing the paperwork. It was hard to transfer the loan/mortgage into their name due to the associated titles. You enquired about what you needed to do to help them with the transfer. Your spouse was trying to find a new solicitor to use and was then asked by the solicitor to speak to a tax agent in relation to the period when the Property was rented.

•                     An email dated XX XXX 20XX that you received from the Banking Team. It advised you that your spouse had initiated a loan servicing request, and that as a party to the loan, you also had to sign the document.

•                     An email dated XX XXX 20XX sent by you to a conveyancer. You explained to them that at the time of the marriage breakdown you had sought some advice which was incorrect and now given you and your spouse did not have a binding financial agreement in place in relation to the Property, you asked about the possibility of holding funds aside from the sale of the Property, to cover your CGT liability.

•                     A letter from a Law firm dated XX XXX 20XX. The letter contains details from a meeting that you and your spouse attended and provides the following details from that meeting:

­                             Both you and your spouse attended the Law office on XX XXX 20XX and consulted a lawyer (Person A).

­                             The appointment had been made as you and your spouse wanted to discuss the transfer of a jointly owned property to one of you.

­                             You informed Person A that you had become separated years before, divorced on XX XXX 20XX, but had not entered into any formal written property settlement.

­                             You informed the lawyer that you owned two properties jointly, the first being Property B and the second being the Property.

­                             You told Person A that you had agreed between yourselves that you were entitled to Property B (ands would take responsibility for the debt against that property) and your spouse was entitled to the Property (and would take responsibility for the debt against that property).

­                             You asked Person A about the process of transferring property from both parties to one party without a family law Court Order.

­                             Person A informed you that your own settlement arrangement was not legally binding, and that instead you should both enter into Court Consent Orders that stipulate which spouse receives particular assets and which spouse is responsible for particular debts.

­                             Person A informed you that by filing Court Consent Orders finalising property settlement, the two properties could be transferred pursuant to those Orders exempt from stamp duty.

­                             Person A informed you that although there is usually a twelve-month limitation period after divorce for filing Court Consent Orders finalising property settlement, if both parties consent there is usually no difficulty with filing an Application for Consent Order after the usual twelve-month limitation period.

­                             Person A informed you that in addition to the stamp duty saving, each of you would gain the benefit through Court Consent Orders of the certain finalisation of your property settlement.

­                             You informed Person A that you did not wish to proceed with Court Consent Orders.

­                             Person A then informed you that without Court Consent Orders, stamp duty would be payable on the transfer of Property B to you and on the transfer of the Property to your spouse.

­                             You stated that Property B would be soon sold and that therefore you would not proceed with a Property B transfer and that both of you would instead sell Property B, and that you would keep the net sale proceeds as per your own settlement arrangement.

­                             You informed Person A that Property B was subject to a mortgage with a bank of about $X. You said this debt would be paid out when Property B is sold.

­                             You informed Person A that the Property was mortgaged to a bank with a home loan of about $X.

­                             Your spouse informed Person A that they had the funds to pay out the loan on the Property.

­                             Person A informed you that to enable stamp duty to be assessed on the transfer from yourself to your spouse of your half share of the property, it was necessary to obtain a written market appraisal of the value of the property from an estate agent. You were advised that the estate agent would need to mention three recent comparable sales in the appraisal letter to give a basis for the agent's assessment of value.

­                             Your spouse informed Person A that the likely value of the Property appraised by an estate agent would be between $X and $X.

­                             Your spouse informed Person A that they would obtain the written market appraisal.

­                             Your spouse stated that before doing this transfer, they would go ahead (after the appointment) and pay out the loan and obtain a signed Release of Mortgage from the bank.

­                             Your spouse informed Person A that once they had completed the above tasks, including obtaining from an estate agent a written market appraisal of the value of the Property, they would consult Person A again and arrange for the transfer of your half share of the jointly owned Property over into their sole name.

­                             You did not consult with the lawyers again after the XX XXX 20XX in relation to the proposed transfer to your spouse of your share of the Property.

Your spouse decided to continue to live in the Property rather than look to sell it in the short term, because its location was convenient for them and their new partner.

You use an accountant to help you to prepare your income tax returns.

You did not report a capital gain or loss in relation to Property B in your 20XX income tax return on the basis that a CGT event occurred in XXX 20XX when Property B was sold. You received all proceeds from the sale.

You did not report a capital gain or loss in relation to the Property in your 20XX income tax return on the basis that a CGT event happened to you at the Separation Date.

You have advised that advice regarding the CGT implications of the arrangement was not provided to you by the accountant, nor were the tax implications or requirements advised by the Lawyers at the time of consultation with them.

The Property has just been sold and a capital gain has been made. The funds are being held by a solicitor.

It is proposed that all the proceeds from the sale of the Property will be paid to your spouse as per the Arrangement.

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 108-5

Income Tax Assessment Act 1997 section 108-7

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

Reasons for decision

Question 1

Summary

CGT event A1 did not happen to your interest in the Property on the Separation date as you remained the legal and beneficial owner of your 50% interest.

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 capital gains tax (CGT) event happens to a CGT asset.

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

Section 108-7 of the ITAA 1997 provides that individuals who own a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common.

Section 104-10 explains that this event occurs whenever there is a change of ownership for a CGT asset, for example, when you dispose of a dwelling to someone or dispose of shares in a company.

Subsection 104-10(3) provides that you dispose of a CGT asset when you either enter into a contract for its disposal, or where no contract exists, when the change of ownership occurs.

When considering the disposal of your interest in a CGT asset, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the property. It is possible for legal ownership to differ from beneficial ownership.

An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner that will have a CGT event upon sale of a CGT asset. In some cases, an entity may hold a legal ownership interest in property for another individual in trust.

However, the CGT provisions do not apply to the legal owner of an asset if the legal owner held it on trust for another person and that other person was absolutely entitled to that asset as against the trustee.

In such a case, the transfer of the asset from the other person to the legal owner on trust for the other person is not a transfer of ownership for CGT purposes and no capital gain or capital loss will result. This is because the CGT provisions consider the beneficiary to be the asset's owner, not the legal owner.

Legal v beneficial ownership

Legal interest in a property is determined by the legal title to the property under the property law legislation in the state or territory in which the property is situated.

In certain situations, legal ownership of an asset may differ from the beneficial ownership of an asset.

The legal term 'beneficial ownership' means the right to deal with property as one's own, free of any contractual obligation in respect of it. The person who enjoys the property or who is entitled to the benefit of the property would be considered to be the beneficial owner.

If the beneficial owner is absolutely entitled to a CGT asset as against the legal owner, any act done by the legal owner is treated as if it were carried out by the beneficial owner.

Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) contains guidance on the issues involved where the equitable interest in a property may not follow the legal title.

As stated in TR 93/32, the Commissioner considers 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.

To prove that a different equitable interest exists, there must be evidence that a trust has been established, such that one party is taken merely to hold their interest in the property for the benefit of the other.

Trusts may be of three kinds: express, constructive, or resulting. There are limited circumstances where the legal and equitable interests in an asset are not the same and there is sufficient evidence to establish that the equitable interest is different from the legal title.

Express Trusts

An express trust is one intentionally created by the owner of property to confer a benefit upon another. It is created by express declaration, which can be affected by some agreement or common intention held by the parties to the trust.

For an express trust to be created it is necessary that there is certainty of the intention to create a trust, subject matter and the object of the trust. While trusts can be created orally, all State Property Law Acts contain provisions that preclude the creation or transfer of interests in land except if evidenced in writing.

Constructive Trusts

A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned. It applies whenever equity considers it unconscionable for the party holding title to the property in question to deny the interest claimed by another. The existence of a constructive trust is dependent upon the order of the court.

Resulting or implied trusts

On the purchase of real property, a resulting trust may be presumed where the legal title that vests in one or more of the parties does not reflect the respective contributions of the parties to the purchase price.

A resulting trust arises by operation of law and falls into two broad categories. One such category is where someone purchases property in the name of another (Calverley v Green 56 ALR 483). A trust is presumed in favour of the party providing the purchase money.

If an individual purchases and then pays for a property, but legal title is transferred to another person at their direction, the presumption of a resulting trust arises - the property is held in trust for them. The law presumes that the purchaser, as the person providing consideration for the purchase intended to retain the beneficial interest, although the legal interest is in the other's name.

Application to your situation

You and your spouse jointly purchased the Property. The title of the Property was registered in both of your names as joint tenants.

You have advised that at the Separation date, you entered into an Agreement with your spouse, and that from the Separation Date, you were no longer the owner of the Property. The Property title was not changed to reflect your spouse as the sole owner of the Property at the time you entered into the Agreement.

You do not have contemporaneous evidence of the Agreement with your spouse. The Separation Date occurred in XXX 20XX, but there is no written evidence from that time.

An email dated XX XXX 20XX that you sent to your friend does indicate that you and your spouse had separated. However, as you did not go through the court system, there was no formal documentation in relation to the division of assets. We note that if you had sufficient evidence that you created a trust over your interest in the property in 20XX, a CGT event would have occurred at that time which would not have been disregarded under the marital breakdown rollover provisions. You did not include reference to a CGT event in your tax return at that time. You have advised that you weren't provided the advice to do so by your accountant, however it does not change your responsibility to ensure your tax return is correct when lodged.

You have provided notes from a meeting that you and your spouse attended at the office of the Lawyers on XX XXX 20XX. These notes indicate that you and your spouse had an agreement in how you were going to divide up your assets. But even the notes from this meeting are not contemporaneous, with the meeting being held X years after the Separation Date. It was also indicated during the meeting, and in text messages between yourself and your spouse, that your spouse planned to transfer the Property into their name. However, it was neither transferred into their name or sold in the short term. Due to personal circumstances your spouse chose to continue to live in the Property until it was sold recently.

During the meeting at the office of the Lawyers, Person A informed you that your own settlement arrangement was not legally binding, and that instead you should both enter into Court Consent Orders that stipulate which spouse receives particular assets and which spouse is responsible for particular debts. You advised them that you did not wish to enter into a Consent Order.

You have provided other documents to demonstrate you acted in accordance with what you had agreed, including a change to direct debit form for Property B for repayments to be taken from an account in your name in XXX 20XX and a settlement statement for Property B's sale in XXX 20XX.

You have also advised that 100% of the proceeds from the sale of the Property are to be paid to your spouse.

You do not need to be the sole owner of a property to have the loan repayments direct debited from an account in your sole account, or to receive full proceeds from the sale of a property.

Under subsection 116-20(1) of the ITAA 1997, your capital proceeds from a CGT event include the total of the money you have received, or are entitled to receive, in respect of a CGT event happening.

These terms are further defined in section 103-10 of the ITAA 1997. It states this Part (Part 3-1), and Part 3-3 apply to you as if you had received money or other property if it has been applied for your benefit (including by discharging all or part of a debt you owe) or as you direct.

In your case, you and your spouse sold the Property, which triggered CGT event A1. Money was received in relation to the sale, currently held on trust with a solicitor. You agreed that 100% of the proceeds of the sale of the Property are to be paid to your spouse.

Although you will not receive 50% of the proceeds based on your ownership share, it is considered that 50% of the proceeds has been applied for your benefit. The fact that the money is going to your spouse, and you will not physically receive the 50% portion, does not alter the calculation of your capital gain. The money is considered to have been dealt with as directed by you.

The fact that your personal agreement with your spouse was that they receive 100% of the proceeds, does not confer an additional 50% legal ownership of the Property on them. Such an arrangement is private in nature. The proceeds from the sale of the Property are to be shared between yourself and your spouse according to your legal interests in the Property.

After considering all of the above matters, the Commissioner does not consider the beneficial ownership of the Property differed from the legal title. Consequently, the Commissioner will conclude that you did not stop being the equitable owner of the Property at the Separation Date and that the equitable interests in the Property are exactly the same as the legal interests in it.

Therefore, CGT event A1 did not happen to your interest in the Property on the Separation Date.

Question 2

Detailed reasoning

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

There is a disposal of a CGT asset where a change of ownership occurs from you to another entity.

In your case, you were the legal and beneficial owner of a 50% interest in the Property when it was sold. Therefore, CGT event A1 happened to you when the Property was sold.

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