Edited version of private advice

Authorisation Number: 1051699107455

Date of advice: 15 June 2020

Ruling

Subject: Beneficial ownership - main residence exemption

Question

Is the capital gain you made on the disposal of your ownership share of the property disregarded?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commenced on

1 July 2018

Relevant facts and circumstances

Individual A died and bequeathed X% of the estate to Individual B.

As Individual B suffered from personal and medical issues Individual A requested that Individual B use the inheritance monies to buy a house and put the title to the property in the name of Individual B's family members.

A property was purchased with Individual B's inheritance monies in line with Individual A's request.

Individual B lived in the property from the time of purchase until shortly before they died.

Individual B paid all expenses in relation to the property.

The property was sold within two years of Individual B's death and a capital gain was made.

The property was never used to produce assessable income.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 118-195

Income Tax Assessment Act 1997 Division 128

Reasons for decision

A capital gain you make from a capital gains tax event that happens in relation to a dwelling or your ownership interest in it is disregarded if:

·         you are an individual and the interest passed to you as a beneficiary in a deceased estate

·         the deceased acquired the ownership interest on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then used for the purpose of producing assessable income, and

·         your ownership interest ends within two years of the deceased's death (section 118-195 of the Income Tax Assessment Act 1997 (ITAA 1997)).

A person's legal interest in a property is determined by the legal title to that property under the property law legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation.

It is possible for legal ownership of property to differ from beneficial ownership. A beneficial owner is defined as a person or entity who is beneficially entitled to the asset. In such cases a trust arrangement exists with the legal owner holding the property in trust for the beneficial owner. Individuals may hold a legal ownership interest in property for another individual on trust.

For example, a trust arrangement may arise where one person purchases a property in the name of another. Where an individual purchases and pays for a property but legal title is transferred to another person at their direction, if that person is a stranger, the presumption of resulting trust arises, and the property is held in trust for them.

However, where the property is transferred to an immediate family member, such as a spouse or child, the presumption of resulting trust is replaced by the presumption of advancement which deems the purchase to be prima facie intended to advance the interests of the family members (that is, an absolute gift).

Each of the presumptions may be rebutted with evidence. Based on the available evidence Individual B is considered to have been the beneficial owner of the property throughout the ownership period. Individual B contributed all the funds to acquire the property, paid all expenses in relation to the property and used the property exclusively as their main residence. The property was always intended to be Individual B's with the family members holding it in trust for them.

Your share of Individual B's beneficial interest in the property passed to you as a beneficiary of their Will. As Individual B used the property as their main residence throughout the ownership period, the property was not then used to produce assessable income and the property was sold within two years of Individual B's passing you can disregard any capital gain you made on its disposal under section 118-195 of the ITAA 1997.