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Edited version of private advice
Authorisation Number: 1051573472328
Date of advice: 1 October 2019
Ruling
Subject: Capital gains tax (CGT) implications on the disposal of a property
Question
Do you need to pay capital gains tax (CGT) on the disposal of a property to your relative?
Answer
No
This ruling applies for the following period
1 July 20XX to 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and A have been the owners of a property since a date after 20 September 1985, with you having a larger ownership interest than A.
E has moved into the property and began paying the expenses for it.
An out of court settlement was reached and the court declared that you and A hold the property, in trust for E. The property was to be transferred to E. This was done as you were required to comply with the Deed of Settlement.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 106-50
Reasons for decision
Section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where the beneficiary of a trust becomes absolutely entitled to trust property as against the trustee, the trust property is treated as the property of the beneficiary from just after that time.
When considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the asset.
Paragraph 41 of Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners explains that:
there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title.
Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 provides the circumstances where the beneficiary of a trust is absolutely entitled to a CGT asset of the trust as against its trustee. Paragraph 30 explains that if a CGT event happens in relation to the asset, the beneficiary (and not the trustee) is responsible for any resulting capital gain or loss. The CGT event is generally triggered when a beneficiary becomes absolutely entitled.
The transfer of the property from you and A as trustee to E is not recognised as a change of ownership for the purposes of the CGT provisions and does not constitute a CGT event. This is due to E being taken to have beneficially owned the property from the date he moved into the property and began paying all of the expenses of it.
You, as a trustee of the trust, did not make a capital gain at the time that the trust transferred the property to your relative.
Note: there may have been a CGT event for you, as a trustee of the trust, at the time that your relative became the beneficial owner of the property.