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Edited version of your written advice
Authorisation Number: 1051201917909
Date of advice: 13 March 2017
Ruling
Subject: CGT - beneficial ownership
Question
Will the capital gain made on the disposal of the A property in 20XX be disregarded?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You purchased the A and B properties before 20 September 1985.
You lived in the A property as your main residence from the time of purchase.
You sold the B property to a member of your family after 20 September 1985.
Both you and your family member used the same solicitor for the sale of the B property.
The solicitor transferred both the A and B properties to your family member in error upon settlement of the sale contract.
You continued to live in the A property as your main residence unaware of the error in the transfer of title.
You were made aware of this error in 19XX.
You transferred the title of the A property back into your name as soon as the error was discovered.
You purchased another property in 20XX and moved into the new property as your main residence at that time.
You rented the A property from 20XX.
You sold the A property in 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 104-10(2)
Income Tax Assessment Act 1997 Subsection 104-10(5)
Reasons for decision
The capital gains tax (CGT) provisions apply where an asset acquired on or after 20 September 1985 is disposed of. However, subsection 104-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a change in the legal ownership of an asset without a change in the beneficial ownership will not constitute a disposal for CGT purposes.
A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106. 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, such as the title of deed for a property. An individual can be a legal owner but have not beneficial ownership in an asset.
In your case, your family member became the legal owner of the property when the title of the A property was transferred to them in error. You continued to be the beneficial owner, even though you were no longer the legal owner due to the error in the transfer of the title. When the error was discovered the title was transferred from your family member's name back to your name, correcting the error.
It is considered that although there was a change in the legal ownership of the property due to the error, there was no change in the beneficial ownership and therefore there was no disposal or subsequent acquisition, due to the error, for CGT purposes.
As the A property was acquired prior to 20 September 1985, any capital gain made from the disposal of this property will be disregarded (subsection 104-10(5) of the ITAA 1997).