Edited version of private advice

Authorisation Number: 1052037035051

Date of advice: 25 October 2022

Ruling

Subject: CGT - legal vs beneficial ownership

Question

Will the Commissioner accept that the amount of approximately AUD $X received from the taxpayer's sibling on MM YYYY was a gift and should not, therefore, be included in the taxpayer's assessable income for the financial year ended 30 June 20YY?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

01 July 20YY

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

In MM YYYY, the taxpayer's parent (the 'deceased') acquired a parcel of real property ('the Property') in an overseas country.

The Property was acquired by the deceased for XX in foreign currency.

The Property was acquired in the taxpayer's name for the deceased's sole benefit.

The taxpayer held the Property as bare trustee on behalf of the deceased.

The taxpayer moved to Australia in YYYY and became an Australian citizen in YYYY.

The deceased passed away on MM YYYY.

At all times since the Property was acquired by the deceased until their date of death, the deceased was solely responsible for the maintenance and protection of the Property (and met that responsibility), and had sole use, possession and enjoyment of it.

In YYYY, the taxpayer's sibling was appointed administrator of the deceased's estate.

The sibling as administrator of the estate decided for personal reasons, to exclude the Property from the administration of the estate.

The taxpayer continued to hold the Property as bare trustee on behalf of the sibling who would have inherited the Property had it been included in the estate, as it should have been.

At all times since YYYY, the sibling was solely responsible for the maintenance and protection of the Property (and met that responsibility) and had sole use, possession and enjoyment of it.

The sibling decided to sell the Property in MM YYYY.

Due to circumstances overseas, the sibling instructed the taxpayer to sell the Property.

The sibling was appointed attorney.

The Property was sold in MM YYYY for approximately AUD $X.

The Property was not income producing at any time since its acquisition by the deceased to its disposal in MM YYYY.

On MM YYYY, the sibling gifted the proceeds of the above sale to the taxpayer.

The taxpayer intends to transfer the gifted funds to their Australian bank account in MM YYYY.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 118-195

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the taxpayer.

This is to explain how we reached our decision. This is not part of the private ruling.

Summary

After consideration of the relevant factors, the Commissioner is of the opinion that it would be unreasonable to accept that the amount of approximately AUD $X received from the taxpayer's sibling on MM YYYY was a gift. Therefore, this amount should be included in the taxpayer's assessable income for the financial year ended 30 June 20YY.

Detailed reasoning

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or a capital loss will result from a capital gains tax (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 a property is sold.

An important element in the application of CGT provisions is ownership. This must be determined when considering sale of a property.

Legal and beneficial (equitable) ownership

The legal owner of the property is recorded on the title deed for the property issued under that State's or Territory'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 income and proceeds of an asset.

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

TR 93/32 Income tax: rental property - division of net income or loss between co-owners sets out the principle that equitable interest is presumed to follow the legal interest and the Commissioner considers that there are extremely limited circumstances where the legal and equitable interests are not the same. Where it is contended that the beneficial ownership and legal ownership of a property are not the same, there must be evidence to show that the legal owner holds the property in trust for the beneficial owner.

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 (1984) 155 CLR 242). 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 other person's 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 (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 (1984) 155 CLR 242, three important principles 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) [2021] FCA 249the argument of a resulting trust versus the presumption of advancement was discussed at length and the court outlined several principles including:

•                     The presumption of advancement 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 the present case, the deceased had paid for the acquisition of the Property, maintained it, paid the relevant taxes and duties and was solely responsible for the protection of the Property and had sole use, possession, and enjoyment of it. However, the Property was registered in the name of the taxpayer who did not contribute to the purchase or maintenance of the Property.

The deceased did not put a will in place and after their death, the taxpayer's sibling was appointed administrator of the deceased's estate. The Property was not included in the deceased's estate for administration. An affidavit dated MM YYYY signed by the sibling states:

-                      The sibling continued to appoint the taxpayer as the bare trustee who held the Property on his behalf.

-                      The taxpayer appointed the sibling as the true and lawful attorney to appear and represent them and to look after, manage and dispose of the Property.

-                      The sibling sold the Property in MM YYYY (before the affidavit) and gifted the proceeds to the taxpayer.

It is contended that the Property has been held in trust by the taxpayer for the deceased and subsequently for the sibling. Therefore, at the time the Property was sold, the taxpayer asserts that the sibling was the beneficial owner of the Property and the proceeds from the sale of Property was subsequently 'gifted' to the taxpayer. We note that no information is provided on whether the sibling has treated the proceeds from the sale of Property as assessable income in YYYY and whether they paid the relevant taxes on the amount.

There is no documentary evidence to show that the Property was held in trust for the deceased or the sibling. Furthermore, the affidavit indicates that the sibling was merely looking after the Property as the taxpayer's attorney or agent on behalf of the taxpayer.

The facts demonstrate that the deceased paid for the Property, but the legal title was transferred to the taxpayer. Therefore, in the first instance, the presumption of a resulting trust arises. However, the presumption of resulting trust is rebutted by the fact that the Property was registered in the name of the taxpayer. Instead, there is a presumption of advancement.

Furthermore, the fact that the taxpayer received the proceeds from the sale of the Property and the Property was not included in the deceased's estate for administration, supports the view that it was intended that the taxpayer was to hold a beneficial interest in the Property.

We are of the view the taxpayer held both a legal and beneficial interest in the Property. Consequently, the amount received by the taxpayer is not considered a gift, but rather the proceeds from the disposal of a capital asset.

In this regard, it is not necessary to consider the principles regarding 'gifts', and in fact, the sale of the Property has triggered a CGT A1 event. As such, the question of whether Section 118.195 ITAA 1997 applies does not arise as the sale of the Property is a CGT event and should be reported as taxable capital gains.

The taxpayer will need to determine the capital gain from the disposal of the Property and include it as assessable income for the relevant financial year.