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Ruling

Subject: Beneficial ownership

Question and answer:

Are you assessable according to your equitable interest of the Adelaide property for any capital gain or loss that results from its disposal?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2011

Relevant facts

You parents' wished to purchase a property.

Due to financial constraints they were unable to obtain a loan unless you and your spouse went guarantors.

You were informed by the bank that for the loan to be processed, you and your spouse would be required to have your names on the certificate of title of the property. You did so against your will.

You, your spouse and your parents were listed on the title deed as joint tenants.

One parent passed away a number of years later leaving ownership of the property to you, your spouse and your other parent as joint tenants.

Since the property was purchased it has been the residence of your parent.

You have not received any rent from the property or contributed towards the mortgage repayments relating to the property.

Your parent has paid for all expenses relating to the property.

The council rates and electricity bills are all listed in your parent's name.

You maintain that at all times the property has been the residence of your parent and late parent.

Your parent intends to dispose of the property and relocate.

You own a property in a state which you occupy as your main residence.

There has not been a written agreement regarding the ownership of the City X property during your period of joint ownership.

Relevant legislative provisions

Income Tax Assessment Act 1997, Section 102-20

Income Tax Assessment Act 1997, Subsection 104-10(5)

Income Tax Assessment Act 1997, Subsection 126-5(1)

Income Tax Assessment Act 1997, Subsection 126-6(6)

Reasons for decision

Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening to a CGT asset. The most common event, CGT event A1, happens if you dispose of a CGT asset to someone else e.g. the disposal of property.

When considering whether a taxpayer will be liable for any capital gain or loss that results from the disposal of property, 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. In absence to the contrary, property is considered to be owned by person(s) registered on the title, but it is possible for legal ownership to differ from beneficial ownership.

The Australian Tax Office considers that there are extremely limited circumstances where the legal and equitable interests are not the same if they differ there is sufficient evidence to establish that the equitable interest is different from the legal title.

In some cases, an individual may hold legal ownership interest in a property for another individual in trust.  A beneficial owner is defined as a person or entity that is beneficially entitled to the income and proceeds from the asset.

We have considered the facts that you have provided in order to determine whether a trust has been created in relation to your parent's property and our determinations are as follows:

Expressed 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.

In your case, you do not have any documentary evidence that you held your interest in your parent's property as trustee for your mother. Such documents would constitute a declaration of trust and make clear the terms of the trust. The absence of such a document means that an express trust cannot and did not exist in relation to the property.

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 the court, even though that order may operate retrospectively by dating the origin of the trust from some earlier wrongful act.

The facts of your case do not indicate the existence of a court order. It is therefore concluded that no constructive trust exists or existed in relation your parent's property.

Resulting trusts

A resulting trust or sometimes called an implied trust is one that is implied from the presumed intention of the owner of the property.

The most common circumstance where a trust can be implied from an objective consideration of the fact is where someone purchases property in the name of another.

In general, where a person pays the purchase price of a property and causes the property to be placed in the name of some other person, it is presumed that he intends that other person to hold the property in trust for him (Dyer v Dyer (1788) 30 ER 42). This presumption may be rebutted by evidence to the contrary.

The facts of your case do not indicate the existence of a resulting trust. It is therefore concluded that no resulting trust exists or existed in relation to your parent's property.

Conclusion

We have examined the possible existence of a trust, and explored avenues such as express trusts, constructive trusts and resulting trusts. From the facts presented, it has been found that no trust exists. As such, it is concluded that you hold an equitable and legal interest in a share of your parent's property as provided by the title deed.

Therefore, any capital gain or loss that results from the disposal of your parent's property will be assessable to you in accordance with your legal and equitable interest in the property as stated on the title deed.

There are a number of exemptions or exceptions that, if they apply, can mean that a capital gain or capital loss that you make as a result of a CGT event can be disregarded, either in full or in part.

Main residence

You can generally disregard any capital gain or loss you make when you dispose of your main residence if you have used it as your main residence throughout the period of ownership.

The main residence exemption provides that the capital gain or capital loss that you make from the disposal of a dwelling or your ownership interest in it will be disregarded if:

· you are an individual

· the dwelling was your main residence throughout your ownership period

· any land on which the dwelling is situated must be two hectares or less.

To establish a dwelling as a main residence you must move in as soon as practicable. If you own more than one dwelling, only one of them can be your main residence at any one time.

As you have never occupied your parents property as your main residence and you own a property that you have declared to be your main residence you are not entitled to a main residence exemption.

Discounted capital gain

Under certain conditions you may be able to reduce the amount of your capital gain by the CGT discount of 50% (for individuals). In order to be eligible for the discount you must have held the asset for longer than 12 months.

As you held an interest in the Adelaide property for more than 12 months, you are eligible to reduce your capital gain by the discount of 50%.

You must apply any current or prior year losses against your total capital gain before applying the 50% discount.

Discounted capital gain = capital gain including x 50%

For further information on how to calculate your net capital gain you can access our website www.ato.gov .au and refer to the Guide to capital gains tax.