Edited version of your written advice

Authorisation Number: 1013034506194

Date of advice: 15 June 2016

Ruling

Subject: Capital gains tax, trusts and legal and beneficial ownership

Question

Will you be liable for capital gains tax on the disposal of the property?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You purchased a property in the 19XX-XX financial year.

You listed your children on the title deed of the property.

The reason that you put the names of your children on the title deed was because you were of the belief that this would simplify your estate upon your death.

You provided the funds to purchase the property.

The property has been used exclusively in your business, which is a partnership.

You received all income produced from the use of the property within your business. All income has been included in your tax returns.

You paid all of the expenses in relation to the property.

Your children have played no part in any activity relating to the property.

You intend to dispose of the property.

When settlement occurs you intend to receive all the proceeds from disposal.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20,

Income Tax Assessment Act 1997 section 104-10,

Income Tax Assessment Act 1997 section 106-50 and

Income Tax Assessment Act 1997 section 102-20.

Reasons for decision

You make a capital gain or capital loss if a CGT event happens to a CGT asset under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). Property is considered to be a CGT asset. Under section 104-10 of the ITAA, CGT event A1 occurs if you dispose of your ownership interest in a CGT asset. You dispose of that interest if a change of ownership occurs from you to another entity.

When considering the disposal of a CGT asset, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the property.

In absence of evidence to the contrary, the property is considered to be owned by the person(s) registered on the title. It is possible for legal ownership to differ from beneficial ownership. However where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property in trust for the beneficial owner.

We have considered the facts that you have provided in order to determine whether a trust was created in relation to the property.

There are three kinds of trusts: constructive, express, or resulting.

Constructive Trusts

A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned, whenever equity considers it unconscionable for the party holding title to the property in question to deny the interest claimed by another. The existence of a constructive trust is, however, dependent upon the order of the court, even though that order may operate retrospectively by dating the origin of the trust from some earlier wrongful act.

For a constructive trust to exist there needs to be a court order. In your case, there was not a court order in place therefore no constructive trust exists.

Express Trusts

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.

In your case, you do not have any documentary evidence that supports the creation of an express trust over the property. Such documents would constitute a declaration of trust and make clear the terms of the trust. The absence of such a document means that an express trust cannot exist.

Resulting or Implied Trusts

A resulting trust, sometimes called an implied trust, arises by operation of law in favour of the creator of some prior trust or other interest in certain circumstances.

Those circumstances fall into two broad classifications:

• cases in which a settlor fails to completely dispose of the beneficial interest, or where a surplus arises after the original purpose of a trust has been satisfied or has ceased to exist, and

• cases in which someone purchases property in the name of another. A trust is presumed in favour of the party providing the purchase money.

Where an individual purchases and pays for a property but legal title is transferred to another person at their direction, if that person is a stranger, the presumption of resulting trust arises and the property is held in trust for them.

However where the property is transferred to the taxpayer's immediate family, the presumption of resulting trust is replaced by the presumption of advancement which deems the purchase to be prima facie intended to advance the interests of the family members (that is, an absolute gift).

The consequence of the presumption of advancement being upheld is that the parties will hold their equitable interests in the property in the same proportions as their legal interests unless they can rebut the presumption of advancement.

In your situation the presumption of advancement is rebutted on the following grounds: You

• provided all the funds to purchase the property,

• received all income produced from the use of the land within your small business,

• included all income relating to the business activity conducted on the land in your tax returns,

• paid all of the expenses in relation to the property and

• will receive all proceeds from the disposal of the property.

Furthermore your children have played no part in any activity relating to the property.

Therefore it has been determined that an implied trust did exist with regards to the property and the presumption of advancement is rebutted. Therefore your children acted as trustees in relation to the property with you being the beneficiary.

Accordingly, you will be liable for capital gains tax on disposal of the property should a gain arise. Your adult children are entitled to disregard any capital gain or loss that results from the disposal of the property.