Edited version of private advice

Authorisation Number: 1052106095094

Date of advice: 17 April 2023

Ruling

Subject: CGT - legal and beneficial ownership

Question

Did you have a capital gains tax (CGT) event when your 50% interest of the property was sold?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

Around MM YYYY, your child was interested in purchasing a property.

Due to your child's personal circumstances, Bank A requested that you be included as a registered proprietor on title and a joint borrower under the mortgage.

To secure the finance to purchase the property, you and your child agreed to this arrangement. You both also agreed that you would have not have any interest in the property.

There are no documents that record this agreement between you and your child.

In MM YYYY, the property was purchased by you and your child in equal proportions for $X.

You gifted your child $X to assist with the deposit.

The remainder of the purchase price and the mortgage payments were paid by your child.

Your child then refinanced the loan with Bank B and proceeded to make all further mortgage repayments to Bank B.

Your child moved into the property immediately after it was purchased and continued to live in the property until MM YYYY when it was sold to a third party.

The property was your child's main residence and was not used to produce assessable income.

Since the property was purchased, your child has paid all the expenses relating to the property including renovation costs, repairs and maintenance, rates, and utilities.

You have never lived at the property and instead lived in a separate residence.

You did not contribute to the mortgage repayments, rates, maintenance, or other expenses associated with the property.

You did not receive any income or rent from the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax assessment Act 1997 section 106-50

Reasons for decision

Detailed reasoning

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, CGT event A1, occurs with the disposal of a CGT asset. CGT event A1 may arise when a 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 is the legal and/or beneficial owner of the property.

A person's legal interest in a property is determined by the legal title to that property under the land law legislation in the state or territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation. However, it is possible for the legal ownership to differ from the beneficial ownership.

Application to your circumstances

In your case, based on the facts, the Commissioner accepts that in your circumstances although you and your child were the legal owners of the property, it was never intended that you would have any beneficial ownership.

Although you provided funding to assist your child with a deposit towards the property, this was intended to be a gift. The nature of the relationship between you both being parent and child, and the actions after the purchase of the property were consistent with this intention.

It can be reasonably concluded that you did not have beneficial ownership of the property. Consequently, a CGT event did not happen to you when the property was sold.