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Edited version of your private ruling
Authorisation Number: 1012576182226
Subject: CGT - deceased estate - trust - disposal
Question
Did you own 100 per cent of the property located at X?
Answer:
No.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on:
1 July 20XX
Relevant facts
The deceased passed away after 19 September 1985.
The deceased's main residence was built after 19 September 1985 and title to the property is registered with the deceased's parents as joint tenants.
Title to the property was changed, so that the deceased was registered as owning X per cent of the property with the deceased parent's owning the remaining Y per cent.
In accordance with the deceased's will, the property has been sold.
The proceeds from the sale of the property have been placed in trust for the benefit of the deceased's child.
The sale of the property settled in the 20XX financial year and has resulted in a capital gain.
Relevant legislative provisions
Income Tax Assessment Act 1997 - section 102-20.
Income Tax Assessment Act 1997 - section 104-10.
Income Tax Assessment Act 1997 - section 108-5.
Income Tax Assessment Act 1997 - section 112-20.
Income Tax Assessment Act 1997 - section 116-10
Reasons for decision
A capital gain may arise when a capital gains tax (CGT) event happens to a CGT asset. Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT asset is any kind of property, or a legal or equitable right that is not property.
Under section 104-10 of the ITAA 1997 the disposal of a CGT property asset causes a CGT event A1 to occur. You dispose of an asset when a change of ownership occurs from you to another entity.
In the absence of evidence to the contrary, property is considered to be owned absolutely by the person(s) registered on the title, in certain situations it can be held that you hold the property on trust. There are three kinds of trusts: express, resulting, or constructive.
Express 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 this case, there is no documentary evidence that the property was held on trust. 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 exist.
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 do not indicate the existence of a court order. It is therefore concluded that no constructive trust currently exists.
Resulting or Implied Trusts
A resulting trust, sometimes called an implied trust, is a trust that arises by operation of law in favour of the creator of some prior trust or other interest in certain circumstances. Those circumstances fall into two broad classifications:
· cases in which a settlor fails to completely dispose of the beneficial interest, or where a surplus arises after the original purpose of a trust has been satisfied or has ceased to exist; and
· cases in which someone purchases property in the name of another. A trust is presumed in favour of the party providing the purchase money.
Where an individual purchases and pays for a property but legal title to it is transferred to another person at their direction, if that person is a stranger, the presumption of resulting trust arises and the property is held in trust for them. But where the property is transferred to the taxpayer's immediate family, the presumption of resulting trust is replaced by the presumption of advancement which deems the purchase to be prima facie intended to advance the interests of the family members (i.e. an absolute gift).
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.
While it is possible to rebut the presumption of advancement, any rebuttal would essentially create an express trust. From the information provided, we have concluded (see reasons above) that no express trust has been established.
Whilst we acknowledge and appreciate the particular circumstances, the Commissioner has no discretion to vary the legal interest in the property due to the particular circumstances.