Edited version of private advice

Authorisation Number: 1052082202073

Date of advice: 17 February 2023

Ruling

Subject: Capital gains tax

Question

Will a CGT event A1, or another CGT event happen when you remove your name from the title of the property?

Answer

No

Detailed reasoning

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that capital gains tax (CGT) is incurred when a CGT event takes place, and you make a gain from the event.

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.

CGT event A1 - disposal of a CGT asset

CGT events are the different types of transactions that may result in a capital gain or capital loss. The most common CGT event is CGT event A1. Section 104-10 of the ITAA 1997 explains that this event occurs whenever there is a change of ownership for a CGT asset, for example, when you dispose of a CGT asset to someone else. Land and buildings are CGT assets.

CGT event A1 will happen if the transfer of legal ownership of the property occurs, and this is treated as a disposal for CGT purposes.

Application to your circumstances

CGT event A1 occurs when there is a disposal of an ownership interest in a CGT asset. However, CGT event A1 does not occur if there is only a change of legal ownership and not a change of beneficial ownership.

In 20XX, you became the registered legal owner of the property when it was purchased, but without any expectation of having any elements of beneficial ownership. You did not fund the purchase of the Property and there was no intention for you to benefit from any future sale of the property. You lived in this property until the XX January 20XX, at this time you moved to a different state to undertake university studies.

Based on the facts, the Commissioner accepts that in your circumstances, that you are the legal owner of the property, it was never intended that you would have beneficial ownership and the intention was that Person 2 would be the legal owner of the property. It can be reasonably concluded that as the time the legal ownership of the property is changed, that you will not have a CGT event A1 or any other CGT event occurring to you when your legal ownership ends.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Property was purchased in 20XX. The property was purchased in your name, but your mother (Person 2) is the true purchaser. Due to leaving a domestic violence situation, Person 2 wished to protect their assets by not holding the property in their name.

Funds for the deposit were from the 20XX sale of Person 2 previous overseas property, that had been placed in an account in your name. This account was opened solely for this property purchase, and the account was closed in 20XX once the property had settled.

The property is Person 2's main residence and was your main residence until XX January 20XX, when you moved interstate for your university studies.

Person 2 made and continues to make payments on the property related to its purchase, its renovation and payment of rates, services and all outgoings for the property. Some of these services are in your name, but Person 2 pays for them.

The property is held by you on resulting trust for Person 2.

You agree that Person 2 is the true owner and that you have contributed nothing towards the property. You also agree that the property is not Person 2's gift to you.

You do not own any other property, you continue to use this address and have your post sent to the property.

The property is used by Person 2 as their home and as a Bed and Breakfast.

Person 2 now seeks to have the property transferred into their name and remove yours.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act 1997 section 118-130