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Edited version of your written advice
Authorisation Number: 1012973976995
Date of advice: 29 February 2016
Ruling
Subject: Capital gains tax
Question 1
Did a CGT event occur when the property was transferred into your own name?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2015
The scheme commences on:
1 July 2014
Relevant facts and circumstances
A trust was established in 19XX.
The property was purchased in bare trust for you in 20XX in the name of the trustee and your power of attorney.
The property was purchased in this way because you did not have the legal capacity to acquire the property at the time.
This property was transferred to you in 20XX.
At all times from 20XX to 20XX, the property was your principal place of residence.
You were later issued with a taxation statement with a capital gain on the transfer of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 102-20,
Income Tax Assessment Act 1997 - Section 104-10 and
Income Tax Assessment Act 1997 - Subsection 104-10(2).
Reasons for decision
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 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 the law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997).
In your case, the property was purchased in bare trust for you in the name of the trustee and your power of attorney. This asset was then later transferred directly into your own name. Whether this transfer constitutes a CGT event depends on whether you were absolutely entitled to the asset prior to its transfer.
Absolute entitlement
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 (ignoring any legal disability). A beneficiary has all the interests in a trust asset if no other beneficiary has an interest in the asset (even if the trust has other beneficiaries).
Related to this is the concept of beneficial and legal ownership. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset. A legal owner is the individual who has their name on the legal documents associated with the CGT asset, an example would be the title deed for a property. An individual can be a legal owner but have no beneficial ownership in an asset. Under subsection 104-10(2) of the ITAA 1997, a change of ownership is not deemed to have occurred if you stop being the legal owner of the asset but continue to be its beneficial owner. As a result, it is the beneficial owner of a CGT asset that is liable for capital gains tax upon sale of the assets. In some cases, an entity may hold a legal ownership of interest in property for another individual in trust.
Application to your circumstances
In this case, you have lived in the property since it was purchased in bare trust for you. The property was purchased in this way because you did not have the legal capacity to acquire the property at the time. However, you have been the beneficial owner of the property since that time and have had an absolute entitlement to the asset. Therefore, when the property was transferred directly into your name in 20XX by the trustee of the trust, there was no change of beneficial ownership. As a result, no CGT event is deemed to have occurred at this time and no CGT liability arose at that time.