Edited version of private advice

Authorisation Number: 1051957511775

Date of advice: 3 March 2022

Ruling

Subject: CGT - legal vs beneficial ownership

Question

Were P and H joint owners of the Property when the Property was disposed of for the purposes of section 109-5 and section 104-10 of Income Tax Assessment Act 1997 (ITAA 1997)?

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

Person P, Person H and Person S (the rulees) were in a xxxx relationship.

The rulees operated businesses together.

Person H and Person S purchased the Property.

The Property was used as the rulees main residence. The Property ceased to be Person S's main residence in 20XX.

An investment loan was obtained in the name of all three rulees. The funds from the loan were purportedly paid to Person S so that Person P and Person H could acquire their ownership in the Property.

Repayments of the loan in the early years were made from the rulees communal account. Given the close personal relationship between the rulees, Person S agreed to assist with interest payments on the loan.

Repayments of the loan were also made on occasion by companies jointly controlled by the rulees. This was because the rulees would draw down on the loan to assist in funding their businesses. In turn, the companies would on occasion repay amounts given its use of the money.

Person S moved to their own home following the agreement. They later moved back to the Property for a period of time before moving away.

The Property was sold to a third party.

No funds from the sale will be given to Person S.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 109-5

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

Section 102-20 of the 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 ownershipin 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.

There are extremely limited circumstances where we would consider that the legal and beneficial interests are not the same and that there is sufficient evidence to establish that the beneficial interest is different from the legal title. In the absence of any evidence to the contrary, property is considered to be owned by the person(s) registered on the title.

Application to your circumstances

Person H and Person S are both listed as the legal owners of the property. Following the agreement for Person P and H to acquire Person S's interest, some repayments on the loan were made from an account that Person S had an interest in. Further repayments were made by companies that Person S was involved with. Additionally, while Person S moved out of the property shortly after the agreement was made, they later moved back onto the property for a period of time before moving away.

Consequently, following the agreement, Person S remained linked to the property, both financially and by returning to live on the property. Due to the close personal relationship maintained by the rulees, there is insufficient evidence to establish that Person S gave up their beneficial interest in the property and that the beneficial ownership is different from the legal title. Therefore, for CGT purposes, the ownership interests in the property are considered to align with the legal ownership of the property.