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Ruling

Subject: CGT Consequences of jointly owned property

Question and answer:

Does an implied trust exist between you and your family member over a property purchased?

Yes.

This ruling applies for the following period(s):

Year ended 30 June 2013,

Year ended 30 June 2014.

The scheme commenced on:

1 July 2012.

Relevant facts:

You and a family member are the legal owners of a property which you have treated and intend to treat as your main residence for the entire period of ownership.

The property consists of unit X and unit Y (an accessory unit to unit X).

It is situated on two hectares or less.

You were previously advised by a lending institution that you did not have income sufficient to qualify for a home loan of the required amount.

On the advice of the lending institution your then adult family member was added as a joint purchaser.

This was done in order to enable your family member's income to be included in the joint loan application.

Based on the combined income, a joint home loan application was approved and the property was duly purchased in both of your names as registered joint proprietors.

Your family member contributed no funds towards the purchase price and has made no repayment of the housing loan or any other expenses associated with the ownership of this property.

No formal trust deed or documentation was executed at the time of the purchase to record that your family member was holding their interest in the property as trustee for you, the beneficial owner of the property.

Your family member acknowledges that they have no equitable interest in the property and that they have at all times held their legal ownership of the property in trust as trustee for you.

Since purchase of the property it has been your principal place of residence.

You intend to sell this property in the near future.

You intend to request your family member joins you in the sale and transfer of their legal interest in this property as you direct and with no consideration to be paid to your family member from a such a sale.

You have provided copies of statutory declarations made by your family member and yourself.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision

Legal and equitable interests

Unless it can be proved otherwise, property is considered to be legally owned by the person(s) registered on the title, but it is possible for beneficial ownership to differ from legal ownership.

Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that legal owner holds the property on trust for the beneficial owner.

The relevant state act specifies that instruments are required to be in writing in regards to ownership interest in the property. However a subsection states that the creation or operation of resulting, implied or constructive trusts will not be affected by the requirement for instruments to be in writing.

In a trust arrangement there is a:

· Settlor - transfers property to the trustee (settler can be the same individual as the trustee),

· Trustee - Holds the trust property for benefit of beneficiaries with legal title to the trust property,

· Beneficiary(s) -The beneficial owners of the trust property with equitable title to the trust property,

· and the Trust property.

An implied (also referred to as a resulting trust), can arise where either of the following circumstances exist:

(a) cases where a settler fails to completely dispose of the beneficial interests, or where a surplus arises after the original purpose of a trust has been satisfied or has ceased exist, or

(b) cases where property is purchased in the name of a third party. The trust is presumed in favour of the party providing the purchase money.

Taxation Ruling TR 93/32 provides the following; 'The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis ) there is a presumption of advancement so that the beneficial as well as the legal interest will pass. Each of the presumptions may be rebutted by evidence.'

In your case, an implied or resulting trust arose from your arrangement where a third person, your family member 'the trustee', was entered onto the title of a property purchased for your benefit only, the 'sole beneficiary'. No consideration has passed between you and your family member at any point. You were the beneficial owner of the property from settlement and beyond, legally owning 50% and beneficially owning 50%.

As per Taxation Ruling TR 2004/D25 an absolute entitlement, vested in possession and indefeasible interest to a Capital Gains Tax (CGT) asset occurs where a single beneficiary, such as your self, has all the beneficial interests in a trust asset.

Capital Gains Tax

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

In certain circumstances an exemption or exception to the operation of the CGT provision can apply so that the capital gain or capital loss created by a CGT event may be partially or totally disregarded.

Main residence exemption

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) states that you can fully disregard a capital gain or capital loss made from a CGT event that happens to your main residence. To obtain the full exemption from CGT:

· the dwelling must have been your home for the whole period you owned it,

· you must not have used the dwelling to produce assessable income, and

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

In your case, as you beneficially own 100% of this property and have used this property as your main residence for the entire period of ownership you will be exempt from any CGT consequences on sale.