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Edited version of private advice
Authorisation Number: 1051537057392
Date of advice: 28 June 2019
Ruling
Subject: Capital gains tax and disposal of a property
Question
Will you make a capital gain (or capital loss) upon the disposal of the property?
Answer
No
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
In 20XX you and your spouse were asked by your adult child (person A) and their partner (person B) to be a guarantor on a loan to acquire a residential property (the property).
You and your spouse agreed to be guarantor's on the loan by way of using your own property as additional loan security.
You and your spouse only recently become aware that both your names were also listed on the title of the property, as each having a 25% share as tenants in common.
You were never informed of this by your solicitor at the time, and it was your understanding that neither you nor your spouse would be listed on the title of the property as a result of being guarantors on the loan. It was also your understanding that person A and person B would be the only individuals listed on title.
The only reason you and your spouse became involved as guarantors was due to person A and person B being unable to secure the full loan amount needed to purchase the property.
You and your spouse also provided person A and person B with an interest free loan of $x which was used as part of the initial deposit for the property, and the amount was repaid to you and your spouse in full within three years.
Apart from the interest free loan, you and your spouse did not contribute to the purchase or financial upkeep of the property.
You and your spouse have never resided in the property, as the home was occupied by person A and person B for the entire time as their main residence.
You and your spouse have never considered yourselves to have had any beneficial interest in the property.
The property was sold and settlement took place in early 20XX.
You and your spouse did not receive any of the sale proceeds, nor did you or your spouse ever financially benefit from the property in any other way.
As the property was person A and person B's main residence for their entire ownership period, there is no assessable capital gain for either of them in relation to the sale of the property, as they will be claiming a full capital gains tax main residence exemption.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 120-20
Reasons for decision
Under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a capital gains tax (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 law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997).
Beneficial ownership
The concept of beneficial ownership is explained in Taxation Determination TD 2017/11. 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. 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 interest in property for another individual in trust.
In your case, we accept that you were not the beneficial owner of the property. You have not lived in the property and used it as your main residence. Apart from a $x interest free loan you made to person A and person B to assist with the initial deposit for the property (which was fully repaid to you within three years), you did not financially contribute to the purchase or upkeep of the property, nor were you a recipient of any rental income from the property. You did not receive any of the sale proceeds, nor did you financially benefit from the property in any other way.
Therefore, you did not make any capital gain (or loss) when the property was sold.