Edited version of your written advice

Authorisation Number: 1012728374752

Ruling

Subject: Capital gains tax

Question and answer

Can you disregard any capital gain or loss on the transfer of your share of the property occupied by your sibling?

Yes.

This ruling applies for the following period:

Year ending 30 June 2015

The scheme commenced on:

1 July 2014

Relevant facts and circumstances

A residential property was purchased a number of years ago.

The title deed of the property is in your name and your sibling's name.

Your sibling was not able to obtain a loan without your name being on the loan documents and on the title deed.

All costs associated with occupancy, maintenance and repairs to the property have been incurred by your sibling

You own your own home.

There was no written agreement between you and your sibling at the time the house was purchased.

You have provided us with copies of a declaration of trust and two statutory declarations to evidence that the share of the property was held on trust for your sibling.

Your sibling wants the property to be transferred solely into their name.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Section 106-50.

Income Tax Assessment Act 1997 Section 102-20.

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) directs that you make a capital gain or capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset.

Section 104-10 of the ITAA 1997 describes the most common CGT event A1 and this normally happens when the beneficial ownership of a CGT asset is transferred to someone else. 

However, in some cases, an individual may hold a legal ownership interest in a property for another individual in trust. Where the legal and ownership of an asset is different, a trust situation occurs. In this situation the legal owner is the trustee of the asset.

A beneficial owner is defined in Taxation Ruling TR 2004/D25 as a person or entity who is beneficially entitled to the income and proceeds from the asset.

The CGT provisions do not apply to the legal owner of an asset if the legal owner held it on trust for another person and the other person was absolutely entitled to that asset as against the trustee.

Therefore, we need to determine if you are holding your interest in the dwelling in trust and also whether the beneficiary has an absolute entitlement to this asset.

Was there a trust created?

A trust exists when legal title to real or personal property is vested in one person, called a trustee, for the benefit of another person, called a beneficiary.

There are several kinds of trusts, including express and bare.

Express trust

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.  Therefore Express trusts must be evidenced in writing.

In your case a declaration of trust was drawn up on XX XXXX XXX which evidences that your sibling is the sole beneficiary of the property.

Capital gains tax will not apply when the property is transferred from joint names into the sole name of your sibling as an express trust exists with your sibling as the sole beneficiary the property has been held in trust for them.