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Edited version of your private ruling
Authorisation Number: 1012478336233
Ruling
Subject: Main residence exemption
Question
Are you entitled to a main residence exemption under Subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
Your relations purchased a property which you lived in for a period.
You and your relations signed statutory declarations which submit that that the property was held on trust for you absolutely.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-110
Reasons for decision
Under section 118-110 of the ITAA 1997 you can disregard a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence if:
§ you are an individual
§ the property is less than two hectares.
§ the dwelling was your main residence throughout your ownership period
§ the property did not pass to you through a trust or a deceased estate
The meaning of ownership interest in relation to the main residence exemption is discussed in section 118-130 of the ITAA 1997. It provides that you have an ownership interest if:
§ you have a legal or equitable interest in the land on which the dwelling is erected; or
§ a licence or right to occupy the dwelling.
In the absence of evidence to the contrary, property is considered to be owned by the person(s) registered on the title.
However, ownership can also be claimed by an equitable owner for reasons explained below. If this fact can be proven beyond doubt, then ownership belongs to the equitable owner.
To prove that a different equitable interest exists, there must be evidence that a trust, whether express, resulting or constructive, has been established such that one party is taken merely to hold their interest in the property for the benefit of the other.
Oral evidence is insufficient to prove such a claim, as the Property Law Act requires such changes in ownership interests to be evidenced in writing. Generally this office is of the view that we would not recognise a 'resulting trust' that is not declared by a Court of Equity.
Taxation Ruling TR 93/32 discusses the implications for taxpayers' who contend that the equitable interests in the property do not correspond to the legal interest, and concludes with the following advice (at paragraph 41)
'We consider that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. We will assume where taxpayers are related, eg husband and wife, that the equitable right is exactly the same as the legal title.'
For example, where a person purchases and pays for property but legal title to it is transferred to another person at the purchaser's direction, if that other person is a -stranger-, the presumption of resulting trust arises and the property is considered to be held on trust for the purchaser.
However, where the property is transferred to a spouse or child of the purchaser, the presumption of resulting trust is replaced by the presumption of advancement which deems the purchase to be prima facie an advancement (that is, an absolute gift from the purchaser to the spouse or child). The consequence of the presumption of advancement being upheld is that the parties will hold their equitable interests in the property in the same proportions as their legal interests.
The presumption of advancement may be rebutted by evidence to the contrary such as a declaration of your equitable interest by a Court. Alternatively legal title could have been amended to register you as the legal owner. A statutory declaration signed over 13 years after the purchase of the property is insufficient to prove equitable interest.
The mere fact that you live in the property does not extinguish your relations' legal or equitable rights in respect of the property. In the absence of strong evidence demonstrating the existence of a resulting trust, your relations still has the legal and equitable right to the property. As such you cannot disregard the capital gain on the sale of the property under the main residence exemption.