Edited version of private advice

Authorisation Number: 1051796078277

Date of advice: 12 February 2021

Ruling

Subject: Capital gains tax - disposal

Question

Did you own an interest in the property for capital gains purposes just before it was sold?

Answer

Yes

This ruling applies for the following period:

30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your child purchased a property (The Property) for $XXX, XXX several years ago. You purchased The Property as tenants-in-common with a XX% ownership interest each.

Your child initially wanted to purchase The Property on their own but was unable to obtain a mortgage, so you were included as a mortgagee. You were listed on the mortgage.

The property was rented out for a short time after settlement as there were existing tenants when you purchased it. You and your child included rental income in your income tax returns for the relevant year in accordance with your ownership interests.

Following this, your child moved into The Property and it was their main residence until the time of disposal.

You contributed an amount to finance renovations as your child could not afford to pay for these on their own.

You also contributed a percentage of the mortgage repayments while your child was on leave from their employment.

Your child moved interstate a short time ago, necessitating the sale of The Property.

You did not receive any of the sale funds from The Property. Following disposal of The Property and mortgage finalisation, all profits were used for a deposit for a new property, solely in your child's name.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 subsection 103-10(1)

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

Summary

You had an ownership interest in The Property at the time of its disposal.

Detailed reasoning

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a capital gains tax (CGT) event occurring to a CGT asset that you have an ownership interest in.

Section 104-10 of the ITAA 1997 provides that CGT event A1 will happen if you dispose of a CGT asset.In this situation, disposing of the property is a disposal of a CGT asset.For this reason, it is important to determine who the legal ownersof theCGT asset are.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 most cases, the legal owners will be the same as the beneficial owners.

Legal interest in a property is determined by the legal title to the property under the property law legislation in the state or territory in which the property is situated.A beneficial interest refers toa person or entity who is beneficially entitled to the income and proceeds from such property.In some cases, an entity may hold a legal ownership interest in property for another individual in trust.

There are extremely limited circumstances where we would consider that an informal trust exists.There must be evidence that the legal owner holds the property on trust for the beneficial owner before we will accept that beneficial ownership is different from legal ownership.

Application to your circumstances

You and your child are both listed as legal owners of The Property. There is no formal trust deed in place in this situation to alter the position that you both hold legal and beneficial ownership. In addition, you have not provided any information to demonstrate the existence of an informal trust. Although you state that you didn't intend to benefit nor did you receive any funds from the sale of the property, these factors don't support the existence of an informal trust.

Further, your interest in The Property was acquired using your funds (being funds that you borrowed) and The Property was used as security for your loan. (This is a benefit to you.)

You received and declared rental income during the period that The Property was rented out before your child moved into The Property. (This is also a benefit to you.)

In accordance with section 103-10 of the ITAA 1997, you are taken to have received the proceeds of sale because some of it was used to repay your loan and you have directed that the remainder of your share of the proceeds be given to your child.

Therefore,at the time of disposal of The Property, you had an ownership interest in The Property.You are liable for any capital gain in proportion to your ownership interest.