Edited version of private advice

Authorisation Number: 1052020149560

Date of advice: 10 August 2022

Ruling

Subject: Beneficial ownership

Question 1

Did you jointly own the property since its acquisition date?

Answer

Yes.

Question 2

Will you have a capital gains tax (CGT) event upon the sale of the property?

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 purchased a property as joint tenants in equal shares with your parents, acquiring X legal ownership each.

Your parents intended to live at this property as their primary residence.

Your parents intended to sell their previous property to fund the purchase of the new property.

Your parents required X mortgages to provide bridging finance to fund the purchase of the new property as the previous property had not yet sold.

In order to obtain sufficient finance to purchase the property, the financier required you to be included on the property title as well as on both mortgages.

You agreed to this arrangement only to assist your parents to purchase the property.

Your parents lived at the property as their main residence since it was purchased.

You lived in the property with your parents for a period of time.

You subsequently lived in the property in a couple of instances for periods of a couple of years at a time since then.

You have never paid any rent or board to stay in the property.

Your stated involvement in the purchase of the property was solely to enable your parents to obtain the required finance.

You have not made any financial contribution to the purchase of the property, mortgage repayments, or any ongoing costs.

The property is currently in the process of being sold.

You will not receive any financial benefits from the sale of the property and all proceeds of the sale will go to your parent.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-5

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 as described in section 104-5 of the ITAA 1997. 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 affected 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, Gibb CJ found three important principles in relation to the presumption of advancement:

•                     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 probable than not that a beneficial interest was intended to be conferred.

•                     The presumption of advancement may be rebutted by evidence of contrary 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

You have stated that you agreed to take a share of legal ownership of the property and also to have your name as co-mortgagee on both mortgages required to purchase the property. Despite the fact that you have never made any financial contribution to repay the mortgage or assist with other expenses, from a legal perspective, you purchased the property as a joint tenant in equal shares with your parents.

No documentary evidence has been provided to establish that the property was held in trust for your parents, therefore there are no grounds to consider the creation of an express trust. There is also no court order to establish the creation of a constructive trust.

In your situation, the facts and circumstances surrounding the property's purchase considered in light of your relationship to your parents rebuts the presumption of a resulting trust in favour of the presumption of advancement.

As there is no documentary evidence from the time of purchase to indicate a contrary intention and rebut the presumption of advancement, your beneficial interest in the property is held to be equal to your share of legal ownership of the property.

You own a share in the property; therefore, the sale will trigger CGT event A1 upon its disposal.