| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011845061677
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Subject: Capital Gains Tax
Question
Can you disregard the capital gain or capital loss incurred when your parent sold your ownership interest in the property?
No.
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commences on:
1 July 2009
Relevant facts and circumstances
Your parent purchased a property.
You did not contribute financially to the purchase of the property.
The ownership (as per the Title) was 50% in your name.
Your parent paid all costs relating to the property.
During 2010, your parent sold the property.
You did not benefit financially from the sale of the property.
There was no legal trust agreement drawn up indicating that the beneficial ownership is different to the legal ownership.
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
Reasons for decision
These reasons for decision accompany the Notice of private ruling.
Capital gains tax (CGT) is not a separate tax. Any assessable capital gain is included in your tax return, along with your other income, and taxed at your marginal rate. You make a capital gain or capital loss as a result of a CGT event happening (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)).
The most common event (CGT event A1) happens if you dispose of a CGT asset to someone else. In your situation, this will be the sale of the property (section 104-10 of the ITAA 1997).
When considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the asset. In the absence of evidence to the contrary, property is considered to be owned by person(s) registered on the Title.
In your case, the Title to the property lived in by your parent showed that you legally owned a 50% share of the property.
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).
Trust
In certain situations, legal ownership of an asset may differ from the beneficial ownership of an asset. Where the legal and beneficial ownership of an asset is different, a trust situation occurs. 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.
An express trust is one intentionally created by the owner of the property in order to confer benefit upon another. It is created by an express declaration, which can be effected 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, certainty of the subject matter of the trust and certainty as to the object of the trust.
While trusts can be created orally, all State Property Law Acts contain provisions derived from the Statute of Frauds that preclude the creation or transfer of interests in land except if evidenced in writing. The declaration does not necessarily need to be evidenced in writing at the time that the trust was created, it may be written at a later date.
As there was no written evidence to the contrary you are considered to own 50% of the property in accordance with the Title deed.
As there is not a valid trust, the requirements of section 106-50 of the ITAA 1997 have not been met.
Therefore, any capital gain or capital loss you made from the sale of your interest in the property cannot be disregarded and must be included in your income tax return in the relevant income year.