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Edited version of private ruling
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Ruling
Subject: Capital gains tax and transfer of property
Question
Does the transfer of your one third share in a property trigger capital gains tax event (CGT) event A1?
No.
This ruling applies for the following periods
Year ended 30 June 2011
The scheme commenced on
1 July 2009
Relevant facts
In the 19X0s you were transferred a share in a property.
The share in the property was transferred to you under the agreement that your relative would have the full use and benefit of the property and was considered the owner of the property.
Your relative leased out the property and received the rental income and paid for all of the repairs, maintenance and outgoing expenses.
The council, water rates and insurance on the property are all in your relative's name.
Recently your relative requested that you transfer your interest in the property to them.
You refused to transfer your interest in the property to your relative and Supreme Court proceedings commenced.
The proceedings commenced and while there was no formal order made by the court all parties agreed to resolve the proceedings on the basis set out in the Terms of Settlement.
The Terms of Settlement agree that you had no beneficial interest in the property and would transfer your legal interest to your relative.
As part of the settlement agreement your relative will indemnify you for any capital gains tax liability that may arise as a result of the transfer of your interest in the property to your relative.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 106-50.
Reasons for decision
You make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset.
CGT event A1 will happen when you dispose of a CGT asset to someone else.
Legal v beneficial ownership
When the disposal of an asset occurs one of the most important elements in the application of the CGT provisions is ownership; both legal and beneficial ownership must be determined. In most cases, in the absence of evidence to the contrary, property is considered to be owned absolutely by the person(s) registered on the title.
It is possible for legal ownership to differ from beneficial ownership. In such cases, a trust relationship exists with the legal owner (trustee) holding the property in trust for the beneficial owner (beneficiary). The CGT provisions do not apply to the legal owner of a dwelling if that legal owner holds it in trust for another person and that other person was absolutely entitled to that dwelling as against the trustee (section 106-50 of the ITAA 1997).
As you have a written agreement signed by all parties that you were holding the property in trust a CGT event has not occurred upon the transfer of your interest in the property to your relative.