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Edited version of private advice
Authorisation Number: 1012642684422
Ruling
Subject: your rental property
Question
Will a capital gains tax event happen when the title deed for your investment property is corrected to show you and your spouse as tenants in common?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commenced on
1 July 2011
Relevant facts
The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
• the application for private ruling, and
• additional information.
You and your spouse sought to purchase an investment property.
You and your spouse completed and signed a document for a third party adviser prior to the purchase of the property. The document identified the intended ownership structure was to be tenants in common, with one person's interest being greater than the other's.
The firm which undertook the conveyance of the property, however, prepared your property transfer as joint tenants and the title deed showed you as joint tenants.
You have received the relevant documents to correct the error on the title deed.
The title deed will be now corrected to show your ownership as being tenants in common with the relevant ownership details.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 108-5.
Reasons for decision
Taxation Ruling TR 93/32 discusses the income/loss from a rental property co-owned by husband and wife. The ruling states that this income/loss must be shared according to the legal interest of the owners except in those very limited circumstances where there is sufficient evidence to establish that the equitable or beneficial interest is different from the legal title.
You have stated that your interests in the property were always agreed to be an uneven split as tenants in common. Your intentions are evidenced by the manner in which you conducted the property transaction and the form you completed prior to the purchase of the property.
It is also noted that the relevant State revenue office have accepted that the current registration of the property does not reflect your intentions and will waive any duties that would otherwise be payable to alter the title.
Although the matter is not free from doubt, it is accepted in all the circumstances of your case that your equitable interest in the property has always been divided unevenly, despite the current legal interest showing as 50/50.
A capital gain or capital loss may arise if there is a change in the beneficial ownership of an asset.
As it is accepted that your beneficial interest in the property is not 50/50, a change in the legal title to reflect that entitlement will not represent a change in beneficial interest. Consequently there will be no capital gains tax consequences arising from the change in legal title.