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Ruling

Subject: Capital gains tax - disposal of property held in trust

Question: Do you make capital gain or capital loss made upon the disposal of the property you held in trust for your child?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2011

Relevant facts

In 1998 you purchased vacant land (the property).

You had a dwelling constructed on the vacant land for your child (child A) to reside in due to their medical condition.

Child A established the property as their main residence and continues to reside in it.

As a result of an application to a government department Tribunal (the Tribunal) in mid 2010, the Tribunal determined that the property was purchased in trust for child A.

Child A is responsible for all costs associated with the upkeep of the property.

In your Will dated late 2004, you have bequeathed the property to child A.

In your Will dated late 2011, you have bequeathed the property to child A and it is held in trust for them and is to be transferred to her absolutely upon your death.

You entered into a Deed of Trust with child A in relation to the property.

Child A will determine when the property will be disposed of in the future.

Child A will receive all the proceeds from the disposal of the property.

You have provided a copy of the documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling:

· the government department tribunal decision

· your last Will dated late 2011

· your last Will and Testament dated late 2004, and

Deed of Trust between you and child A.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 106-50

Reasons for decision

The most common capital gains tax (CGT) event is CGT event A1, which happens if you dispose of a CGT asset, the time of the event, is when you enter into the contract for the disposal or if there is no contract when a change of ownership occurs.

You have an ownership interest in a property if:

· you have a legal or equitable interest in the land which the dwelling is erected upon, and

· you have a right or licence to occupy the dwelling.

In the absence to evidence to the contrary, property is considered to be owned by the person(s) registered on the title. (An exception is if the property is held in the name of someone other than the spouse or child of the owner). Evidence may include documents that show that the registered owner holds the property in trust for someone else.

It is possible for the legal ownership to differ from beneficial ownership. Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner(s) hold the property in trust for the beneficial owner.

Absolutely entitled to a CGT asset

It is considered that a beneficiary is absolutely entitled to a CGT 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.

The interest a beneficiary has in the trust asset or asset must be vested in possession and indefeasible. A trustee would only be obliged to satisfy a demand from a beneficiary with such an interest.

A vested interest is one that is bound to take effect in possession at some time and is not contingent upon an event occurring that may or may not take place. A beneficiary's interest in an asset is vested in possession if they have the right to immediate possession or enjoyment of it.

In your situation, it is considered that you held your interest in the property in trust for child A for the following reasons:

Child A used the property as their main residence from the time the new dwelling was constructed and they enjoy all the benefits of residency as a beneficial owner would do.

It was clear that your intention in purchasing the property was to assist child A to obtain a home due to their medical condition.

Child A pays all rates and insurance on the property.

Your current and superseded wills state that the property is held in trust for child A.

The government tribunal accepts that you acquired the property as a gift for child A and you hold it in trust for them.

You have provided a copy of Deed of Trust between you and child A confirming that the property was purchased in trust for child A.

As child A has a vested, indefeasible and absolute interest in the property from the day it was purchased, they were always absolutely entitled to the property as against you as the trustee and has always been the beneficial owner of the property.

Therefore, when the property is disposed of upon child A's direction you will not be liable for any CGT on your interest in the property.