Edited version of private advice

Authorisation Number: 1051977300874

Date of advice: 28 April 2022

Ruling

Subject: CGT - legal and beneficial ownership

Question 1

Did you jointly own the property X from the acquisition date?

Answer

Yes

Question 2

Did you have a capital gains tax (CGT) event when the property X was sold?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for tax purposes.

The property X was the matrimonial home of your parents.

On purchase of the property X, it was registered in joint title in the names of four of the children.

One child was not a joint owner of the title to this property.

Your parents migrated to Australia and obtained Australian citizenship, after which they began actively looking for a property to be their matrimonial home.

While in negotiation to sell a property in country A, they exchanged contracts for the purchase of property X. Your parents funded a cash deposit for this purchase.

You, pursuant to a power of attorney, entered a contract to sell their first property in country A.

You then transferred funds; the transferred funds were derived from the proceeds of the sale of your parents' first apartment in country A as well as the remaining balance of their savings account in country A.

Your parents needed a bridging loan to fund the purchase of the property X while they awaited the sale of another property in country A (the second property).

As your parents did not have incomes in Australia, they relied upon the borrowing capacity of the children as you were employed. This allowed them to arrange a bridging loan for the property X with a mortgage on this property as security for the loan.

You handled the sale of the second property on behalf of your parent under a power of attorney. You then remitted the sale proceeds to substantially repay the bridging loan.

The unpaid balance of the bridging loan was eventually repaid by your parents.

The purchase price of the property X had been fully financed by your parents via cash, the sale proceeds of both properties in country A and a bridging loan, which loan was then repaid by your parents.

There was no written trust deed or document to document the above arrangements between your parents and beneficiaries.

You understood your parents' intention at that time as being:

1. The parents would live in the property x as their matrimonial home, and
2. In agreement with the daughters, after they died four of their daughters would sell the property x and divide the proceeds equally between five of their daughters "as if the sale proceeds were part of the estate of the survivor between the two of them".

This is confirmed by a statement that you provided (the statement). The statement was from the solicitor prepared your parents' Wills and subsequently handled the probate of the Wills after your parents passed away.

Your parents' respective Wills do not mention property X or any other specific asset.

Their Wills state that the estate would pass to the surviving spouse and then grandchildren. The children are not named as beneficiaries of the Wills. Two children are named as executors.

The statement explained that as all children would get equal share of the sale proceeds of their matrimonial home after their death, it was not necessary to name their children as beneficiaries under the Wills as they have decided to give their remaining assets, namely their cash, shares and other residual assets to their five grandchildren equally.

The statement provides that your parents made it clear that the matrimonial home was their property, and their intention was for the registered holders of the property to sell the property after their death and distribute the sale proceeds equally to their children. However, the solicitor did not request for any title documents or trust documents to verify the underlying ownership of their matrimonial home.

The property X was the matrimonial home and principal place of residence of your parents until they passed away.

During their occupation of the property X at least one of the children and their respective families had at various intervals resided at the property with your parents to take care of them. Under such living arrangements they shared household expenses with your parents, including but not limited to council rates, utilities and capital expenditure.

You provided some invoices including property service invoices, local council correspondences, property insurance documents and utility bills, which showing that the services being in your parent's names.

The property was not used for any income producing activity.

The property was sold by auction and settled, and the sale proceeds were divided equally between the children. While there was a discrepancy in these payments, this related to certain offsets between them regarding certain medical expenses of your late parent and other miscellaneous expenses. The discrepancy was also attributable to one child absorbing all withholding taxes deducted by lawyers.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common CGT event, event A1, occurs with the disposal of a CGT asset. A CGT event A1 may arise when property is sold.

When considering the sale of property, the most important element in the application of the CGT provisions is ownership. It must be determined who had ownership of the property.

The legal owner of the property is recorded on the title deed for the property issued under that State's legislation. It is possible for legal ownership of property to differ from beneficial ownership. An individual can be a legal owner but have no beneficial ownership in an asset. Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property on trust for the beneficial owner. A beneficial owner is defined as a person or entity who is beneficially entitled to the asset.

To prove that a different equitable interest exists, there must be evidence that a trust has been established - such that one party is taken merely to hold their interest in the property for the benefit of the other.

Trusts may be of three kinds: constructive, resulting or express. There are limited circumstances where the legal and equitable interests in an asset are not the same, and there is sufficient evidence to establish that the equitable interest is different from the legal title.

Express Trust

An express trust is one intentionally created by the owner of property in order to confer a benefit upon another. It is created by express declaration, which can be effected by some agreement or common intention held by the parties to the trust.

For an express trust to be created it is necessary that there is certainty of the intention to create a trust, subject matter and the object of the trust. While trusts can be created orally, all State Property Law Acts contain provisions that preclude the creation or transfer of interests in land except if evidenced in writing.

Constructive Trusts

A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned. It applies whenever equity considers it unconscionable for the party holding title to the property in question to deny the interest claimed by another. The existence of a constructive trust is dependent upon the order of the court.

Resulting or implied trusts

On the purchase of real property, a resulting trust may be presumed where the legal title that vests in one or more of the parties does not reflect the respective contributions of the parties to the purchase price.

A resulting trust arises by operation of law and falls into two broad categories. One such category is where someone purchases property in the name of another (Calverley v Green). A trust is presumed in favour of the party providing the purchase money.

If an individual purchases and then pays for a property, but legal title is transferred to another person at their direction, the presumption of a resulting trust arises - the property is held in trust for them. The law presumes that the purchaser, as the person providing consideration for the purchase intended to retain the beneficial interest, although the legal interest is in the others name.

However, there are instances where this application may not apply. This is where the property is transferred to the purchaser's immediate family such as a spouse or a child. In such circumstances, the presumption of a resulting trust is replaced by the 'presumption of advancement'.

The rebuttable presumption of advancement deems the purchaser to have prima facie intended to advance the interests of the family members (i.e. an absolute gift).

Presumption of Advancement

A presumption of advancement is an equitable principle where a person puts property in the name of a spouse, child or other person. The presumption only applies to transfers and purchases made by people who stand in particular relationships, such as parents and their children.

Under a presumption of advancement, the property is transferred with the intention of transferring both the beneficial interest in the property as well as the legal title. The parties hold their equitable interests in the property in the same proportions as their legal interests.

In Calverley v Green, three important principals in relation to the presumption of advancement Gibb CJ found:

• Where one party purchases property in the name of the other, it will be presumed that the first party did not intend the other to take a beneficial interest unless there is such a relationship between the parties as gives rise to a presumption of advancement.
• The sort of relationship where the presumption will arise is where the relationship is such that it is more probably than not that a beneficial interest was intended to be conferred.
• The presumption of advancement may be rebutted by evidence of the actual intention of the purchaser at the time of purchase. If two parties have contributed to the purchase and the legal interest does not reflect the proportions of their contributions, the intentions of both parties at the time of purchase are important.

The onus of rebutting the presumption of advancement lies with the party who is considered as having gifted the property to another (usually the purchaser). Evidence is required that demonstrates that the purchaser did not intend the property to be a gift to the other party.

In Commissioner of Taxation v Bosanac (No 7) the argument of a resulting trust versus the presumption of advancement was discussed at length. The court outlined the following principles:

• ...Although it is referred to as a presumption of advancement, the dominant approach in Australia is that it is strictly not a presumption.
• Rather it is a description of certain circumstances, being the existence of particular relationships, where the presumption of a resulting trust does not arise.
• Generally, the court will look to the dealings, documents and communications at the time of the purchase to determine whether there was intention to retain a beneficial interest. However, evidence of the dealings between the parties after the time of purchase may be a relevant factor.

Conclusion

In this case, your parents purchased the property X and did not register the property in their own names. Instead, they registered in the names of children. The children did not contribute to the purchase of the property. They did not pay the mortgage or provide for the deposit.

No documentary evidence was provided that the property X was held in trust for your parents. With the absence of a declaration of intention an express trust cannot be held. Furthermore, there is no court order stating a constructive trust has arisen. Instead, the facts demonstrate that your parents paid for the property, but the legal title was transferred to another. Therefore, in the first instance, the presumption of a resulting trust arises.

However, the presumption of a resulting trust is rebuttable where specific relationships exist. In this case, the fact the property X was registered in the names of the children of the purchaser is a rebuttal of the presumption of a resulting trust. Instead, there is a presumption of advancement.

To rebut the presumption of advancement there is a requirement to consider the facts and assertions provided.

As the purchasers are deceased, and there exists no documented reasoning for their decisions, any rebuttable evidence can only be drawn from the children's evidence.

According to the children, the reason for the registration of the property in the name of some children include:

• Your parents wished that they would sell the property and divide it equally amongst the children once they died and
• One child was not yet an Australian resident at the time of property registration.

Other relevant evidence includes the fact the property X was not itemised in either parents' Wills, and the children are not named as beneficiaries of the estate. The Wills state the assets of the estate go to the surviving spouse, and thereafter the grandchildren. Whilst the children are not named as beneficiaries, two of them are executors of the estate.

You provided a statement from a solicitor confirmed your understanding of your parents' intention. This indicates the property had purposefully been omitted as an asset of the estate.

Furthermore, the children have sold the property X and kept the proceeds (i.e. as opposed to including it in the estate and having it distributed per the Wills). This would indicate your parents gifted the property outright to the children - it was not meant to go into the asset pool of the deceased estate and distributed accordingly.

Consequently, you, as one the children who (as a result of the presumption of advancement) held both legal and beneficial ownership from the acquisition date, the sale of property x has triggered a CGT A1 event.