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Edited version of your written advice
Authorisation Number: 1012865703973
Date of advice: 30 September 2015
Ruling
Subject: Main residence CGT exemption
Question 1
Is A absolutely entitled to the property?
Answer
Yes.
Question 2
Will A be eligible to apply subdivision 118-B of the Income Tax Assessment Act 1997 (ITAA 1997) to the property?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2015
The scheme commences on
1 July 2014
Relevant facts and circumstances
B entered into a contract of sale to purchase the property.
B paid the deposit pursuant to the contract and will pay the balance of all money due under the contract on or before the settlement date.
B registered the property in the company (the trustee).
The trustee is to hold the property on trust for A.
The trustee is willing to act as bare trustee of the property for A.
The trustee acknowledges that B has paid and will continue to pay all money due pursuant to the terms of the Contract and shall indemnify the trustee against all claims, demands or such that may be bought against the trustee arising from it being the trustee of the property.
The trustee hereby discloses that it holds and will continue to hold all its right title and interest in the property that it has acquired or will acquire in the future on trust for A.
The trustee agrees that it will deal with the property from time to time as may be directed by A to transfer the property to A or to whom A may direct and encumbering the property by way of a mortgage as A may direct.
The trustee agrees to sign all such documents and carry out all such acts as A may direct from time to time.
A occupies the land as their principal place of residence from XXXX.
Relevant legislative provisions
Section 106-50 of the Income Tax Assessment Act 1997
Subdivision 118-B of the Income Tax Assessment Act 1997
Section 104-10 of the Income Tax Assessment Act 1997
Reasons for decision
The capital gains tax (CGT) provisions apply whenever the owner of a CGT asset (such as property) disposes of their ownership interest in that asset to another person whether by sale or gift.
When considering whether the transfer of title of an asset is a CGT event, the most important element in the application of the CGT provisions is ownership. It must be determined who the legal owner of the asset is and who its beneficial owner is.
In the absence of evidence to the contrary, property is considered to be owned absolutely by the person(s) registered on the title.
However, it is possible for legal ownership to differ from beneficial ownership. In such cases, a trust relationship exists with the legal owner holding the property on trust for the beneficial owner.
Section 106-50 of the ITAA 1997 provides that for a beneficiary who is absolutely entitled to a CGT asset as against the trustee of the trust, any act done by the trustee in relation to the asset will be as if the beneficiary had done it.
Draft Taxation Ruling TR 2004/D25 discusses the meaning of the words absolutely entitled to a CGT asset as against the trustee of a trust for CGT purposes. Paragraph 2 of TR 2004/D25 states that; an absolutely entitled beneficiary (rather than the trustee) is treated as the relevant taxpayer in respect of the asset for the purposes of the CGT provisions. Paragraph 10 of TR 2004/D25 states that 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.
In this case, we accept that the property was held on trust for A and that they are absolutely entitled to the property. Accordingly, section 106-50 of the ITAA 1997 applies and any act done by the trustee in relation to the property will be as if A had done it.
As per subdivision 118-B of the ITAA 1997 you can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence.
However, this exemption may not apply in full if:
• it was your main residence during part only of your ownership period; or
• it was used for the purpose of producing assessable income.
In this case, A is absolutely entitled to the property and therefore any act done by the trustee in relation to the property will be as if A has done it. As the property is A's main residence they will be eligible to apply subdivision 118-B of the ITAA 1997.