Edited version of your written advice

Authorisation Number: 1012897990868

Date of advice: 21 October 2015

Ruling

Subject: Capital gains tax

Question 1

Does the Commissioner accept that a resulting trust was created when the property was purchased?

Answer

Yes.

Question 2

Are you entitled to apply the 50% discount?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

The late Individual A and their spouse Individual B signed a contract to purchase a property.

Individual A and Individual B paid the deposit.

Under a Purchaser's Declaration, Individual A and Individual B nominated the Company as the purchaser and transferred the dwelling to the Company. It is not known why this was done.

The purchase price of the dwelling consisted of a significant loan, savings of Individual A and Individual B and funds from the sale of two properties owned by Individual A and Individual B.

The directors and shareholders of the Company were Individual A and Individual B.

Individual A and Individual B both used the dwelling as their main residence.

Individual A died in 20AA leaving a will.

Prior to the death of Individual A, Individual B was moved to a nursing facility.

Individual A's will provided for the inheritance, use and occupation of the property by Individual B and also provided for Individual C to continue to reside at the property.

Following the death of Individual A, Individual C continued to reside in the dwelling as their family home.

Individual B died in 20BB without a will.

Probate of Individual A's will was granted to Individual A's executors in 20CC.

Letters of administration for Individual B's estate were granted to Individual B's administrators in 20DD.

During the administration of Individual A's estate and Individual B's estate ASIC deregistered the Company.

The dwelling was sold in 20XX and was not used to earn assessable income at any time.

You have provided an email from the local council confirming that based on their records, the owners of the dwelling were Individual A and Individual B.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 120-20

Reasons for decision

Question 1

Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset.

CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997).

Legal title and equitable interest

Taxation Ruling TR 93/32 deals with the division of net income or loss between rental property co-owners. Paragraph 42 of TR 93/32 explains that any capital gain or loss should be apportioned on the same basis.

Generally, the profit or loss should be shared according to the legal interests of the owners. If the equitable interest does not follow the legal title, there is some basis for the profit or loss to be distributed on the equitable and not the legal basis. However, paragraph 41 of TR 93/32 states the following:

We consider that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title.

The Commissioner accepts that a resulting trust may be created when an entity purchases property in the name of another without a written declaration of trust.

In this case, the legal title to the property was held by the company. However, all the purchase moneys were provided by Individual A and Individual B from savings, the disposal of other properties and a loan. Individual A and Individual B used the house as their family home and satisfied the loan repayments during their lifetime. Individual A and Individual B also paid for all maintenance and ongoing costs of ownership. Correspondence from the local council recognised Individual A and Individual B as the owners of the property.

We accept that on the evidence provided, a resulting trust was created at the time of purchase. Therefore, the executors for Individual A's estate and the administrators of Individual B's estate are liable for any capital gain made on the disposal of the property.

Question 2

When calculating your capital gain you may be entitled to apply the general discount if:

• you are an individual, a trust or a complying superannuation entity

• a CGT event happens to an asset you own

• the CGT event happened after 11.45am (by legal time in the ACT) on 21 September 1999

• you acquired the asset at least 12 months before the CGT event, and

• you did not choose to use the indexation method.

The discount percentage is the percentage by which you reduce your capital gain. You can reduce the capital gain only after you have applied all the capital losses for the income year and any unapplied net capital losses from earlier years.

In this case, the executors for Individual A's estate and administrators for Individual B's estate are entitled to apply the general 50% discount to any capital gain made on the disposal of the property.