Edited version of your written advice

Authorisation Number: 1013139593653

Date of advice: 16 December 2016

Ruling

Subject: CGT - main residence exemption - ownership interest

Question

Will you be assessable on the capital gain or loss made on the disposal of the property?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20ZZ.

The scheme commences on:

1 July 20YY.

Relevant facts and circumstances

You owned a house with your parents (the property).

You and your parents lived at the property, which was your family home until you got married and moved to a rental property.

You moved out of the property on 20WW.

You were in a business partnership with your parents from 19VV to 20XX.

You entered into a Deed of Dissolution of Partnership between you and your parents in 20XX. Paragraph 4.1 provides:

In consideration of the payment of the said sum of money Partner A relinquishes any right title and interest which he or she may have in and to the Partnership assets which comprise:

a) a related property;

b) the property;

c) any tools of trade not presently in Partner A's possession;

d) the vehicle.

Paragraph 6.2 provides:

The parties acknowledge and agree that the property and the vehicle may remain registered in the joint names of the partners until the sale of these assets at a time of convenience to the Continuing Partners and that Partner A irrevocably authorises Partner B and Partner C to deal with these assets in any way which they see fit as Partner A acknowledges that upon payment of the monies referred to in paragraph 4.1 Partner A has no further interest in these assets.

Paragraph 6.3 provides:

If requested by Partner A, Partner B and Partner C will cause a transfer of the interest of Partner A in either of the property or the vehicle to be prepared and registered so that Partner A is removed from the title for these assets. Partner A must pay any stamp duty registration fees and legal expenses in relation to such transfers.

Paragraph 6.4 provides:

If any capital gains tax is payable by Partner A in relation to the sale of the property once this is sold, Partner B and Partner C will pay such tax for and on behalf of Partner A and indemnify Partner A in respect of any such tax liability.

Your name was not removed and remains on the property title deed with your parents.

You have used the payout that you received in 20XX to buy your family home with your spouse.

Your parents are looking to sell the property and move into a nursing home.

You will receive no money from the sale of the property.

You have no contract document or trust deed between you and parents in relation to the property.

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 118-110

Income Tax Assessment Act 1997 Section 118-130

Income Tax Assessment Act 1997 Section 118-145

Income Tax Assessment Act 1997 Section 118-185

Reasons for decision

Summary

You are the legal owner of the property and will assessable for any capital gain or loss arising from its disposal.

Detailed reasoning

Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or capital loss as a result of a CGT event happening to a CGT asset. The most common event, CGT event A1, happens if you dispose of a CGT asset to someone else e.g. the disposal of a dwelling.

Legal ownership

When considering the disposal of your interest in a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the property. In absence to the contrary, property is considered to be owned by person(s) registered on the title.

The Australian Taxation Office considers that there are extremely limited circumstances where the legal and equitable interests are not the same, or if they differ, there must be sufficient evidence to establish that the equitable interest is different from the legal title.

In some cases, an individual may hold legal ownership interest in a dwelling for another individual in trust.  A beneficial owner is defined as a person or entity that is beneficially entitled to the income and proceeds from the asset.

We have considered the facts provided in order to determine whether a trust has been created in relation to the property and our determinations are as follows:

● 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 when relating to the transfer of interests in land, must be evidenced in writing. In this case, there is no documentary evidence that the property was held on trust. 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.

● A constructive trust is a trust imposed by operation of law. The facts of this case do not indicate the existence of a court order, and therefore it can be concluded that a constructive trust does not exist.

● A resulting trust, sometimes called an implied trust, is one that is implied from the presumed intention of the owner of the property. The most common circumstance where a trust can be implied from an objective consideration of the facts is where someone purchases property in the name of another. The facts of your case do not indicate the existence of a resulting trust. It is therefore concluded that no resulting trust exists or existed in relation to the property.

In your case, we have examined the possible existence of a trust, and explored avenues such as express trusts, constructive trusts and resulting trusts. From the facts presented, it has been found that no trust exists.

Main Residence Exemption

Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling or your ownership interest in it, if you use the dwelling as your main residence. To qualify for a full exemption, the dwelling must have been your main residence for the whole period you owned it.

Section 118-145 of the ITAA 1997 allows you to treat a dwelling (that was you main residence) as your main residence indefinitely, if you do not use it for the purpose of producing assessable income. However, if you do use it for that purpose, you can only treat the dwelling as your main residence for a maximum period of six years while you use it for that purpose.

For any period(s) you choose to apply the main residence exemption, you cannot treat any other dwelling as your main residence for that period of time.

Section 118-185 of the ITAA 1997 allows a partial exemption if the dwelling was your main residence for only part of your ownership period.

Conclusion

In your case, you are joint tenants with your parents. Your name on the title of the property would indicate that you jointly purchased the property with your parents. You were also aware that you would remain the legal owner of the property with your parents.

You have not provided sufficient evidence to support that you were not a joint owner of the property. Therefore, for CGT purposes you are viewed as a joint owner of the property and that when the property is disposed of, you will dispose of your interest in the property.

You are eligible for a partial main residence exemption for the period you resided with your parents at the property. You may also choose to treat the property, using the absence rule, as your main residence for the period until you moved into your house with your spouse (the period you spent renting).

Your capital gain or loss should be apportioned by taking into account your total non-main residence days and the total days in your ownership period as per subsection 118-185(2) of the ITAA 1997.

While we acknowledge your circumstances, the Commissioner does not have any discretion available under legislation to allow you to disregard the capital gain made on the disposal of your share of the property.