Edited version of private ruling

Authorisation Number: 1011859279665

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Ruling

Subject: Capital gains tax - shares purchased by your sibling

Question and Answer

Did you acquire the shares at the time that they were transferred into your name?

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

Some time after 20 September 1985, you transferred an amount of money to your sibling in order for them to purchase shares in a company on your behalf. The money was transferred in a number of separate amounts.

You were regularly deployed as part of your employment and due to being transient, you were unable to set up an online trading account.

Your sibling did this as a favour for you and there was no financial gain for them.

Your sibling purchased the shares on your behalf, with the intention that when you set up your online trading account, they would be transferred across to you.

During the following several months, you were posted a number of times to a number of different locations, and you found it impossible to set up an online trading account.

You settled in a location and, after delivery of your personal effects, you were able to begin setting up an online trading account. It then took several months for the trading account to be approved.

Subsequently, you requested a transfer of the shares into your name and incurred a transfer fee. The shares were transferred into your name during the 2010-11 income year.

You have provided two 'Statement of Trust' documents which state that your sibling agreed to purchase the shares and hold them in trust on your behalf.

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 and

Income Tax Assessment Act 1997 Section 109-5.

Reasons for decision

Generally, you acquire a CGT asset when you become its owner.

You then make a capital gain or capital loss when a CGT event happens in relation to that asset (for example you dispose of a property that you own).

In order to determine when you acquired your shares, we need to determine whether you have always been the beneficial owner of the shares.

Where the legal ownership differs from the beneficial ownership, a trust situation occurs. In these cases the legal owner is the trustee of the asset.

According to G. Teh and B. Dwyer, Introduction to Property Law, at paragraph 606:

A trust exists whenever legal title to real or personal property is vested in one person, called a trustee, for the benefit of another person, called a beneficiary.

There may be three kinds of trust: express, resulting or implied and constructive.

Express Trusts

An express trust is one intentionally created by the owner of property in order to confer a benefit upon another. It is created by 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.

Constructive Trusts

A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned, 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, however, dependent upon the order of a court, even though that order may operate retrospectively by dating the origin of the trust from some earlier wrongful act.

Resulting or Implied Trusts

A resulting trust, sometimes called an implied trust, is a trust that arises by operation of law in favour of the creator of some prior trust or other interest in certain circumstances. Those circumstances fall into two broad classifications:

· cases in which a settlor fails to completely dispose of the beneficial interest, or where a surplus arises after the original purpose of a trust has been satisfied or has ceased to exist; and

· cases in which someone purchases property in the name of another. A trust is presumed in favour of the party providing the purchase money.

But where the property is transferred to the taxpayer's immediate family, the presumption of resulting trust is replaced by the presumption of advancement which deems the purchase to be prima facie intended to advance the interests of the family members (i.e. an absolute gift). However for the presumption to have force, the taxpayer must be standing in loco parentis to that family member.

In your situation, it is considered that your shares were held in an express trust of which your sibling was the trustee. You have provided two "Statement of Trust" documents which clearly indicate that your sibling purchased and held the shares in trust on your behalf.

Absolute entitlement

It is considered that a beneficiary is absolutely entitled to an asset of a trust as against the trustee if the beneficiary is:

· absolutely entitled in equity to the asset and thus has a vested, indefeasible and absolute interest in the asset, and

· able to direct how that asset shall be dealt with.

In your circumstances, you had a vested, indefeasible and absolute interest in the shares from the day they were purchased.

Therefore you had an absolute entitlement to the shares and you are considered to have always been the beneficial owner of the shares.

As you were always absolutely entitled to the shares as against your sibling as the trustee, you are taken to have acquired the shares at the same time that they were purchased by your sibling as the trustee.

Therefore, everything done by your sibling as the trustee in relation to the shares is taken to have been done by you and when your sibling transferred the shares into your name there was no change in ownership.

This means that when your sibling, the trustee, transferred the shares to you, no capital gain or capital loss was made by your sibling as no CGT event happened.