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Ruling
Subject: CGT disposal
Question and answer:
Will the transfer of ownership of assets to your children trigger a CGT event?
No.
This advice 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 opened a bank account for each of your children.
The accounts were opened as 'in trust for' accounts due to the banks not allowing accounts to be opened in the name of minors only.
The funds that were accumulated in the accounts were made up from cash gifts from the children's grandparents and parents, child endowment payments and so on.
You used the funds held in your children's accounts to purchase shares on behalf of your children. The shares were purchased under you and your spouse's names as shares are not permitted to be held under the name of a minor.
Due to changes in taxation you began to submit tax returns upon commencement of the changes and for the subsequent years for each of your children.
The tax returns that were lodged included dividend income as well as any capital gains. As a result your children have being paying tax on any income derived since the taxation changes were implemented.
Neither you nor your spouse has accessed any of the funds for personal use as these accounts have always been strictly for your children's use.
As your children are now adults, you are intending to fully transfer ownership of the funds and shares to each of your respective children.
Relevant legislative provisions
Income Tax Assessment Act 1997, Section 102-20.
Income Tax Assessment Act 1936, Section 104-10.
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that capital gains tax (CGT) is the tax you pay on certain gains that you make. Section 102-20 advises that you make a capital gain or capital loss as a result of a CGT event.
Under section 104-10 of the ITAA 1997, the most common CGT event is CGT event A1. CGT event A1 happens when you dispose of an asset to someone else, for example if you sell shares.
When considering whether the transfer of title of an asset, such as shares, is a disposal, the most important element in the application of the CGT provisions is ownership. Both legal and beneficial ownership must be determined.
Taxation ruling no. It 2486 income tax:children's savings accounts, discusses the Commissioner's view of who has ownership of money held in a child's bank account, and therefore who should pay tax on the interest earned in the child's bank account?
Paragraph 5 of Tax Ruling IT 2486 states,
5. The answer to the question 'Whose money is it?' must inevitably depend upon the facts of each case. If, for example, the account is made up of money the child has received as birthday or Christmas presents, pocket-money or money from newspaper rounds, childminding, etc., then the money in the account should be regarded as that of the child.
Although IT 2486 deals specifically with children's bank accounts, the same principles can also be applied to other assets such as shares.
In your case, you opened a 'in trust' bank account in trust for each of your children as the bank's policy did not allow accounts to be opened under the name of a minor. The bank accounts accumulated funds from cash gifts from the children's grandparents and parents, as well as child endowment payments. The funds from the accounts were used to purchase shares on your children's behalf. At no stage did you or your spouse benefit from any of the funds or transactions that occurred. Therefore consistent with the principles established in IT 2486, it is accepted the funds and shares belong to your children solely, and therefore the transfer of ownership will not trigger a CGT event.
Accordingly, as a CGT event will not occur when the ownership title of the shares and funds are transferred to your children, you will not be subject to any CGT provisions.