Edited version of private advice

Authorisation Number: 1051961952264

Date of advice: 22 April 2022

Ruling

Subject: Income - shares - beneficial ownership

Question

Can all dividends as well as future share activity (sale and re-purchases of shares) be treated as your parent's dividend income and capital gains/losses for taxation purposes rather than belonging to you?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Your parent transferred their stock portfolio to you.

It is their intention that this be part of your inheritance upon their passing, however, they wanted this done prior to save you from the administrative tasks that will entail and to reduce the burden on the executor.

Although the share portfolio is in your name, you have a written agreement that all dividends received will be transferred to your parent's account while they are still alive.

Whenever you checked your bank account and noticed a dividend had been deposited, you would transfer it to their bank account.

Neither you nor your parent participated in any voting rights as a shareholder.

Your parent determined the selling of the shares and was entitled to any proceeds from the sale of shares.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a person, who is an Australian resident, shall include the ordinary income derived by the person from all sources during the income year. Dividends are considered to be ordinary income for the purpose of section 6-5 of the ITAA 1997.

CGT is the tax that you pay on certain gains you make. You may make a capital gain as a result of a CGT event happening to an asset in which you have an ownership interest. The most common CGT event, CGT event A1, occurs when you dispose of your ownership interest in a CGT asset to another entity.

When considering the tax treatment of the shares, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the asset. In absence of evidence to the contrary, assets are considered to be owned by person(s) registered as the legal owner.

Taxation Ruling TR 93/32 (TR 93/32) deals with the division of net income or loss between rental property co-owners. If the equitable interest does not follow the legal title, there is some basis for the profit or loss to be distributed on the equitable and not the legal basis. However, paragraph 41 of TR 93/32 states the following:

We consider that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title.

Although the asset in this situation is not a rental property, the principles in TR 93/32 remain relevant.

In your case, it is considered that you are the legal and equitable owner of the shares. You were transferred ownership of the shares from your parent as a gift subject to the conditions that before they passed away you would allow them to continue to receive the dividends and make the decisions in relation to the shares. The fact that you entered into a private agreement with these conditions does not mean that you were not the owner of the shares.

Additionally, the reason provided for the transfer of the shares was that they would not form part of your parent's estate to reduce the burden of work for the executor. However, if your parent was considered to still be the owner of the shares following the transfer, they would form part of their estate upon their passing. This indicates that it was intended that you would become the owner subject to a private agreement to transfer the dividends and delegate the decision making to your parent until their passing.

Consequently, as it is concluded that you hold a legal and equitable interest in the shares, you are required to declare the dividends from the shares as ordinary income in your income tax return. Additionally, on any future sale of the shares, the CGT event will happen to you and any capital gain or loss will need to be included in your income tax return.