Edited version of private advice

Authorisation Number: 1051605299839

Date of advice: 15 November 2019

Ruling

Subject: Beneficial ownership

Question

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

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

During your marriage, you and your former spouse purchased a specific property.

Sometime after your divorce became final, you both agreed to and signed a Binding Financial Advice (BFA) which stated that the property was to be transferred to you. The property however was never officially transferred to you as agreed to and remained in both names until it was sold.

There is nothing in the BFA, or orders, which alters the underlying legal and beneficial ownership of the property or a declaration of trust. It did however provide for the steps to be taken in the event of default which were not followed.

Your former spouse did not pay any expenses or benefit financially from the property and signed a letter of authority which instructed that all proceeds from the sale were to be paid to you.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 106-50

Income Tax Assessment Act 1997 Section 108-5

Reasons for Decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. The property is a CGT asset (section 108-5 of the ITAA 1997).

Under section 104-10 of the ITAA 1997 CGT event A1 happens if you dispose of a CGT asset. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner that will have a CGT event upon sale of a CGT asset. In some cases, an entity may hold a legal ownership interest in property for another individual in trust.

We consider in extremely limited circumstances where the beneficial ownership and the legal ownership are not the same, there must be evidence that the legal owner holds the property on a trust for the beneficial owner. There must be a valid trust over the property and that the equitable owner is entitled to benefit from the property.

In your case, there was no evidence provided by you to show there was a trust in place nor was a trust created by operation of a court order. Ultimately the BFA, directs that title be transferred to you, however does not constitute a change in ownership itself unless the terms outlined in the agreement are complied with as per specific sections in the agreement. Furthermore, it appears the requirements to be taken in the event of default were not taken. There is nothing in the BFA, or orders, which alters the underlying legal and beneficial ownership of the property or amounts to a declaration of trust.

Summary

The terms of the BFA that you and your former spouse agreed to were not adhered to as the property was never transferred into your sole name. Therefore, in the absence of any further evidence, the taxation obligations are based on the legal title.