Edited version of your written advice

Authorisation Number: 1051346263046

Date of advice: 2 May 2018

Ruling

Subject: CGT on the sale of a jointly owned property.

Question

Will the sale of the property result in a capital gains tax (CGT) event for you?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your spouse provided funds to your children to assist them in purchasing their home. Your loan represents one third of the asset purchase price.

The mortgage on the home is in the names of your children however you are guarantors for the loan.

Your names were added to the property title as tenants in common giving you a one third interest, to secure your funds.

You have not paid any of the property expenses such as rates and insurances and have not contributed any funds to maintenance and renovation of the property.

The property was sold.

You elected to accept an amount less than the amount provided to your children as payment for your interest, with the balance being given to your children as a gift.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

Under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) CGT event A1 happens if you dispose of a CGT asset. A person's legal ownership interest in a property is determined by the legal title to that property. The legal owner(s) of a property are recorded on the title deed for the property. In some cases it is possible for legal ownership to differ from beneficial ownership. A beneficial owner is defined as a person or entity who is beneficially entitled to the income and proceeds from the asset. Ordinarily; however, in such cases a trust arrangement exists with the legal owner holding the property in trust for the beneficial owner. An individual may hold a legal ownership interest in a dwelling for another individual in trust.

Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property on trust for the beneficial owner. In the absence of any evidence to the contrary property is considered to be owned by the person(s) registered on the title. Evidence may include documents that show the registered owner holds the property on trust for someone else.

In your case, you and your children purchased a house as tenant in common and you have not provided the required evidence to support that you were not a joint owner of the property. Your name on the title of the dwelling and as a guarantor would indicate that you jointly purchased the dwelling with your children. Therefore, for CGT purposes you are viewed as a joint owner of the dwelling and that when the dwelling was disposed of, you had disposed of your interest in the dwelling and were entitled to capital proceeds.

Capital proceeds is the term used to describe the amount of money, or the value of any property you received, or are entitled to receive as a result of a CGT event happening

In your situation, you have received an amount from the proceeds of the sale that was less than the amount equal to your one third ownership share. Although your share of the sale proceeds were not paid in full to you, this was done at your request. Therefore, the full one third amount are still capital proceeds that you were entitled to receive from the disposal of your share in the dwelling, and must be included as in the calculation of your capital gain or capital loss.

As you have never lived in the dwelling, the main residence exemption, either fully or partially, does not apply to you. Therefore you will not be able to disregard the capital gain made on the disposal of your share of the dwelling and it must be included in your income tax return.

However, as you are an individual, you owned your share of the dwelling for longer than 12 months and the capital gain was made after 21 September 1999, you will be able to apply a 50% discount to your capital gain.