Edited version of private advice

Authorisation Number: 1052160188043

Date of advice: 24 August 2023

Ruling

Subject: CGT - main residence

Question 1

Will the sale of the Property result in a capital gains tax (CGT) event for you?

Answer

Yes.

Question 2

Is there discretion available that will allow the Commissioner to disregard the capital gains tax on the disposal of the property?

Answer

No. There are no powers available to the Commission to disregard any capital gains tax payable following the sale of the property.

Summary

CGT event A1 occurs when you dispose of a CGT asset. The beneficial owner of the CGT asset will be liable to determine the capital gain or loss from the CGT event. In this case, we determine that you have legal and beneficial ownership in the property. Therefore, any capital gain or capital loss you made from the sale of your interest in the property cannot be disregarded and must be included in your income tax return in the relevant income year.

This private ruling applies for the following period:

Year ended X June 20XX.

The scheme commenced on:

X July 20XX.

Relevant facts and circumstances

Your parents purchased the Property in 19XX as joint tenants.

It is situated on less than 2 hectares of land.

The Property was their main residence for their entire ownership period.

In 19XX, your parents transferred the title of the Property into your name to enable you to obtain a loan to purchase your own property as you did not have a deposit.

There was never a written agreement regarding the transfer of the title.

Your father passed away in 20XX.

In 20XX, you and your mother were both diagnosed with medical conditions.

It was decided that your mother was to commence residing with you, to allow your relatives to better support you both.

Your parents paid the bills associated with the house such as gas and electricity.

The Property was sold in 20XX.

The proceeds from the sale of the Property were used to pay off the mortgage of your main residence.

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 108-5

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. The Property is a CGT asset (section 108-5 of the ITAA 1997).

Under section 104-10 of the ITAA 1997 CGT event A1 happens if you dispose of a CGT asset. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner that will have a CGT event upon sale of a CGT asset. In some cases, an entity may hold a legal ownership interest in property for another individual in trust.

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.

We consider in circumstances where the beneficial ownership and the legal ownership are not the same, there must be evidence that the legal owner holds the property on a trust for the beneficial owner. There must be a valid trust over the property and that the equitable owner is entitled to benefit from the property.

An express trust is one intentionally created by the owner of the property in order to confer benefit upon another. It is created by an express declaration, which can be affected by some agreement or common intention held by the parties to the trust.

Application to your circumstances

The title of the Property was transferred into your name to enable you to obtain finance to purchase your own property. It was at that time you became both the legal and beneficial owner of the Property. Although you did not reside in the Property, you benefited from the Property as it enabled you to secure finance for a second property.

You are listed as the legal owner of the Property and there is no formal trust deed in place to alter the position that you hold both legal and beneficial ownership. In addition, there is no information to demonstrate the existence of an informal trust.

You sold the Property in 20XX, the proceeds from which was used to pay the mortgage on your main residence. This indicates a benefit for you.

As there was no written evidence to the contrary, you are considered to own 100% of The Property in accordance with the Title deed. Additionally, as there is not a valid trust, the requirements of section 106-50 of the ITAA 1997 have not been met and CGT event A1 occurred when your legal ownership ended

Therefore, any capital gain or capital loss you made from the sale of your interest in the property cannot be disregarded and must be included in your income tax return in the relevant income year.

As the Property was held for over 12 moths, there is a CGT discount of 50%, which means that you pay tax on only half the net capital gain on that asset.