Edited version of your private ruling

Authorisation Number: 1012543267232

Ruling

Subject: Capital gains tax

Question

Can the capital gain arising from the sale of the property be equally apportioned between X and Y?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

A block of land was acquired. The contract for the purchase of the land was in the name of X and/or Nominee. The contract stated that Y was the nominee.

The Certificate of Title for the land subsequently issued citing Y as the sole proprietor of the land.

The loan for the purchase of the land is in the joint names of X and Y.

X and Y also entered into a contract together for the construction of a building on the land. The loan for the construction was also in joint names.

The property has been leased since shortly after the completion of the construction.

X and Y have both been declaring a 50% interest in the income and expenses in relation to the property in their tax returns since the property has been leased.

The property was sold during the 2012-13 financial year and made a capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 106-50

Reasons for decision

Resulting trust

Where two or more taxpayers borrow jointly to fund the purchase cost of a rental property, a resulting trust in respect of that property and in favour of those taxpayers could arise (Calverley v Green (1984) 155 CLR 242).

If the contributions to the purchase cost of a property are not reflected by the legal interests in that property a presumption of resulting trust applies. In that case it is presumed that the person or persons to whom the legal title is transferred holds or hold the property upon resulting trust in favour of those who contributed to the purchase cost in the shares in which they contributed (Calverley v Green (1984) 155 CLR 242).

A presumption of a resulting trust arising may be rebutted if a presumption of advancement applies and that later presumption is not rebutted.

Absolute entitlement

Where a beneficiary is absolutely entitled to a CGT asset as against the trustee, section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997) states that any act done in relation to the CGT asset by the trustee will be treated as if the act was done by the absolutely entitled beneficiary.

The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction (Draft Taxation Ruling TR 2004/D25). The most straight forward application of absolute entitlement is where a single beneficiary has all of the interests in the trust asset.

Application of the law to the present circumstances

The taxpayers contributed equally to the purchase cost of the rental property with a joint borrowing. As only Y is the legal owner of the rental property, it is presumed that, in accordance with the taxpayers' equal contribution to the purchase cost of the rental property, Y holds a 50% share of the property upon a resulting trust in favour X.

It is accepted a presumption of advancement does not apply in these circumstances and the contemporaneous evidence of the taxpayers' common intention at the time of the purchase supports a conclusion a resulting trust exists and was intended.

As the sole beneficiary of the resulting trust, X is absolutely entitled to a 50% share of the property. Accordingly, as the property has been sold and CGT event A1 occurred, section 106-50 of the ITAA 1997 applies to treat the event as applying to X in relation to his interest in the property.

Accordingly, any capital gain will be distributed between X and Y equally in accordance with their beneficial interests in the property.