Edited version of private advice

Authorisation Number: 1051904539396

Date of advice: 10 November 2021

Ruling

Subject: CGT and rental income

Question 1

Is any of the rental income in relation to the property assessable to you?

Answer

No.

Question 2

Did CGT event A1, or another CGT event happen to you when the property was sold?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In 20XX you assisted your child in acquiring funds to purchase land and build a house that would become their principal place of residence (the property).

Your child did not have a sufficient deposit or borrowing capacity in their own right to purchase the property, and you did not want them to incur mortgage insurance.

You gifted funds to your child toward the deposit, but this was not enough to satisfy the bank requirements.

You therefore agreed to be named on the loan facility and on the legal title of the property.

You made a written statement to the effect this property was always to belong to your child.

The property was purchased jointly rather than as tenants in common to ensure that upon your death, your child would have the property, and it will not form part of your estate.

Although you were party to the mortgage, you never made repayments to the loan or contributed any way financially to the purchase or upkeep of the property, except by gifting funds for the deposit.

In 20XX the property was producing income. Your child kept and received all the rental income and paid all the rental expenses.

You never treated the property as an asset of yours.

You did not declare any rental income or expenses in your tax returns.

Your child sold the property in 20XX. They received and kept all the sale proceeds.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Reasons for decision

CGT event A1 occurs when there is a change in ownership of a CGT asset. However, CGT event A1 does not occur if there is only a change of legal ownership and not a change of beneficial ownership.

You agreed to be a registered legal owner of the property, but without any expectation of having any elements of beneficial ownership of the property. You were not going to live in the property. You did not intend to, and did not, incur any expenses of ownership of the property, including mortgage payments. You did not intend to, and did not, obtain rent in respect of the property. You did not intend to, and did not, obtain any benefit from the sale of the property.

Based on the facts, the Commissioner accepts that the beneficial owner was different to the legal owners of the property. You had a legal ownership, but did not have any beneficial ownership.

When the property sold, you did not have CGT event A1 or any other CGT event occurring. The CGT event happened to the beneficial owner. Also, the rental income was derived by the beneficial owner. As you were not a beneficial owner, any rental income or rental loss that arose will not be included in your assessable income.