Edited version of private advice

Authorisation Number: 1052078214890

Date of advice: 17 January 2023

Ruling

Subject: CGT - disposal of interest in property

Question

Did a CGT event happen on the disposal of your ownership interest in a residential property to you child and their partner?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

1.            You child and their partner were not able to apply for home loan due to their financial circumstances. As parents, you agreed to become co-borrowers to help them buy a family home. This meant that your names were also registered on the Certificate of Title of the property for the purpose of obtaining the loan as co-owners with your child and their partner.

2.            The loan was approved and a property was purchased in your and their names.

3.            You agreed to become co-borrowers on the mortgage only to help them to secure a loan to purchase their family home. You had no intention of having any beneficial interest in the property. You did not contribute any funds or provided financial assistance towards the purchase of the property.

4.            It was agreed you will transfer your ownership interests in the property into their names and remove your names from the mortgage and the property's title as soon as they are financially able to take over the mortgage themselves.

5.            The property was used as their family home where they lived since it was purchased. They had provided all funds towards the purchase and maintenance of the property.

6.            In 20YY, you removed your names from the mortgage and from the property title by transferring your legal ownership to your child and their partner. You did not receive any benefits or money in respect of the transfer of your legal ownership interests in the property. Stamp duty on the transfer of your ownership interests were assessed as nil, as only legal ownership interests were transferred. The agreement was set out in Statutory Declarations.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 104

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 104-10(2)

Income Tax Assessment Act 1997 section 108-5

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated.

1.            Division 104 sets out all the CGT events for which you can make a capital gain or loss. Where a transfer an interest in a property happens from you to another, the most specific CGT event that could happen is CGT event A1 in section 104-10. CGT event A1 happens if you dispose of a CGT asset. The property will fall within the definition of a CGT asset in section 108-5.

2.            Under subsection 104-10(2), you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, CGT event A1 does not occur if there is only a change of legal ownership and not a change of beneficial ownership.

3.            Based on the information provided, it can be reasonably concluded that at the time of the transfer of your ownership interests to your child and their partner, that is when your names were removed from the property title, no change of beneficial ownership had occurred, only a change in legal ownership happened from you to them.

4.            It is accepted that although you were included on the Certificate of Title of the property, it was only for the purpose of obtaining a loan and it was never intended for you to have, and you never had, any beneficial ownership in the property.

5.            As you are not the beneficial owner of the property, CGT event A1 did not occur when your legal ownership interests in the property were transferred to your child and their partner.