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Edited version of private advice
Authorisation Number: 1051563860150
Date of advice: 4 September 2019
Ruling
Subject: Capital gains tax
Question 1
Is Person A absolutely entitled to the Property at as against Person B for purposes of section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. Person A is absolutely entitled to the Property as against Person B for the purposes of section 106-50 of the ITAA 1997.
Question 2
Will a CGT event happen to Person B under the provisions in Part 3-1 and 3-3 of the ITAA 1997 when Person B transfers legal title to the Property to Person A?
Answer
No. When Person B transfers legal title to the Property to Person A, there is no CGT event for the purposes of Parts 3-1 and 3-3 of the ITAA 1997 because the Property was treated as having belonged to Person A before the transfer and Person A is treated as transferring the legal title to himself.
This ruling applies for the following period(s)
Income year ended 30 June 20XX
Income year ended 30 June 20XX
Income year ending 30 June 20XX
Income year ending 30 June 20XX
Income year ending 30 June 20XX
Income year ending 30 June 20XX
The scheme commences on
Ruling start date 1 March 20XX
Relevant facts and circumstances
You are the registered proprietor of the Property. The Property was advertised as two dwellings on one title. The Property was purchased at auction.
As the Property is located near your residential home, Person A and you saw the advertisement sign for an upcoming auction. You two had been looking for a property that enabled dual occupancy or the ability to construct a second dwelling. Person A was looking to downsize and sell their current residence and you were looking at getting into the property market.
The two dwellings were at all times separately identified by the local council, water authorities and other service providers; as well as by Australia Post. You have supplied copies of council, water and utility bills demonstrating separate addresses for the two dwellings.
Person A and you discussed ownership of each dwelling on the Property and it was agreed that Person A would take the larger dwelling and you would take retain the smaller dwelling. You and Person A agreed that the larger dwelling is A% of the Property and the smaller dwelling is B%. You agreed that you would each pay proportionate to this A/B split.
The contract of sale was signed by Person A. A sum of $X deposit was paid by Person A from funds drawn from their current mortgage over another property. The proportion will be readjusted at the settlement of the other property.
Person A and you discussed the possibility of obtaining joint finance so that both of you could be registered as tenants in common on the Property proportionate to the relevant dwellings you each intended to reside in. You would remain as tenants in common until subdivision was effected to enable allocation of ownership of each dwelling to the respective owner.
However, Person A was unable to obtain finance having made several failed attempts at obtaining finance from various lenders. Person A's loan applications were rejected mainly due to insufficient income documentation. You and Person A were unable to apply jointly for finance because the Bank advised that as you are the only one named as borrower on the facility. Settlement occurred with you as the sole proprietor.
You were unable to obtain a loan to cover the entire settlement sum and Person A deposited an additional $Z into your account for the shortfall being part payment of the 60% payable by Person for the larger dwelling.
A trust agreement was prepared to reflect your intentions with the Property and executed. It was agreed that you are holding the larger dwelling in trust for Person A, being the beneficial owner of the dwelling.
The total amount payable at settlement was $X. The loan proceeds of $X were funded as follows:
· $X from Person A.
· $Y from loan from the Bank.
This meant, in accordance with the trust agreement, on completion of settlement:
· Person A had contributed a total of $X, being 60%; and
· You had contributed a total of $X, being 40%. The funds received from Person A will be used to reduce the bank loan facility of $X.
From the date of settlement, the smaller dwelling has been your principal place of residence and Person A will reside in the larger dwelling as their principal place of residence.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 106-50
Income Tax Assessment Act 1997 parts 3-1 and 3-3