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Edited version of private advice
Authorisation Number: 1052012452416
Date of advice: 27 July 2022
Ruling
Subject: CGT - beneficial entitlement
Question
Will the transfer of Person C's interest in the property to Person A and Person B trigger a CGT event under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No. Under section 102-20 of the ITAA 1997, an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset. A change in the legal ownership of an asset without a change in the beneficial ownership will not constitute a disposal for CGT purposes (subsection 104-10(2) of the Income Tax Assessment Act 1997). The transfer of Person C's interest in the property back to Person A and Person B to rectify the error made will not trigger a CGT event as there is no change in beneficial ownership.
Further information on beneficial ownership can be found in Taxation Determination TD 2017/11.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Person A and Person B acquired the property (the property) before 20 September 1985
Person A and Person B reside on the property.
Person A held an interest in land (the land).
Person A and Person B carry on a business on the land.
Person C is Person A and Person B's child who also works in the business on the land.
On or about XX June 20XX, Person A and Person B provided instructions to their previous solicitor to transfer some of the land to Person C as they are getting older and intend to have Person C take over the business.
The property was not to be included in the transfer.
Contrary to the instructions provided, the solicitors included the property in the transfer documents prepared.
Person A, Person B and Person C signed the transfer documents not realising that the property had been included and the transfer was lodged accordingly.
Person A, Person B and Person C were made aware of the error in 20XX and the error was corrected by transferring the one-third interest in the property from Person C back to Person A and Person B equally, in 20XX. The title of the property was recorded with Person A and Person B as owners with 50:50 interest.
There was no consideration paid at the time of the transfer made in error or the transfer made to correct the error.
Person A and Person B have made all mortgage payments and paid for all expenses relating to the property.
Person C acknowledges that the transfer of the property in 20XX was an error and does not consider that they have any beneficial interest in the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 102-20
Income Tax Assessment Act 1997 subsection 104-10(2)