Edited version of private advice

Authorisation Number: 1051626672456

Date of advice: 4 March 2020

Ruling

Subject: CGT, sale of dwelling, joint tenants, beneficial ownership

Question 1

Will you be liable to pay Capital Gain Tax (CGT) upon the sale of the property held on trust for the benefit of the beneficiaries in accordance with Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2021

Relevant facts and circumstances

You are an Australian citizen and reside permanently overseas. You have been a foreign resident for taxation purposes for over a decade.

You agreed with your relative and relatives' spouse to have your name on the title of property as joint tenants in equal shares. This was to assist them to obtain finance for the property. They had previously attempted to finance the property in their names without success.

The dwelling has always been used for main residence purposes by them and has never been used for investment purposes.

The entirety of the purchase price of the property, all fees interest and principal repayments in respect of any loans secured by any mortgages over the property have been paid at all times by your relatives. They paid all outgoings; utility expenses, repairs, maintenance expenses, land taxes and council rates.

In the current financial year the Court made a declaration that since the date of transfer of the property, you have held your interest in the property on trust for the sole benefit for your relatives. The court declared that you, in capacity as trustee, has a right of indemnity out of the trust property for any taxation liabilities incurred by the trust, legal costs ultimately ordered in these proceedings and any other expenses or liabilities properly and reasonably incurred by you as in your capacity as trustee.

At all times you have not held any beneficial interest in the property and have only held legal interest in the property on trust.

There has been no financial benefit for your name on the title of the property and when the property is sold you will not be receiving any of the profits or gifts of money from the sale.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-55

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 116-20

Reasons for decision

Section 102-20 of the 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.

A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset.

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, the information provided by you state that you have not held any beneficial interest in the property and have only held legal interest in the property on trust. The beneficiaries who have paid all outgoings are the beneficial owners. You will make a capital gain in your capacity as trustee, which may be eligible for the main residence exemption as long as the beneficial owners of the property live there.