Edited version of private advice

Authorisation Number: 1052189493327

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 1 December 2023

Ruling

Subject: CGT - legal and beneficial ownership

Question

Did CGT event A1 happen to you on disposal of the property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

XX X 20XX

Relevant facts and circumstances

Your relative owned a Property and lived in it as their main residence.

You were subsequently included on the title of the Property as a joint tenant at the request of your relative.

Your relative was diagnosed with an illness and was not expected to survive. In the event of their death, they wanted to ensure that the Property would be left to you and could not be claimed by other relatives.

You never lived in the Property. You are married with your own home in which you have lived for many years.

Your relative survived their illness and you sold the Property in order for your relative to purchase a home in a retirement village in their name only.

The sale of the Property occurred in 20XX and your relative used the total sale proceeds to buy their new home.

You received no financial benefit from the sale of the Property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

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 CGT event happens to a CGT asset. All assets acquired since CGT started (20 September 1985) are subject to CGT unless specifically excluded. The Property is a CGT asset.

Section 104-10 of the ITAA 1997 describes the most common CGT event, being CGT event A1. A CGT event A1 happens if there is a disposal of a CGT asset. You dispose of a CGT asset if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

When considering disposal of the Property, the most important element in the application of the CGT provisions is ownership. It must be determined who had ownership of the Property.

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.

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

Trusts may be of three kinds: express, constructive or resulting. There are limited circumstances where the legal and equitable interests in an asset are not the same, and there is sufficient evidence to establish that the equitable interest is different from the legal title

Express Trust

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

For an express trust to be created it is necessary that there is certainty of the intention to create a trust, subject matter and the object of the trust. While trusts can be created orally, all State Property Law Acts contain provisions that preclude the creation or transfer of interests in land except if evidenced in writing.

Constructive Trusts

A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned. It applies whenever equity considers it unconscionable for the party holding title to the property in question to deny the interest claimed by another. The existence of a constructive trust is dependent upon the order of the court.

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). 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 others 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 (i.e. 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, Gibb CJ found three important principles in relation to the presumption of advancement:

•         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 probable than not that a beneficial interest was intended to be conferred.

•         The presumption of advancement may be rebutted by evidence of contrary 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) the argument of a resulting trust versus the presumption of advancement was discussed at length. The court outlined the following principles:

•         ...Although it is referred to as a presumption of advancement, the dominant approach in Australia is that it 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.

Application to your situation

To determine if you held a beneficial interest in the Property, the facts and circumstances surrounding your inclusion on the title are considered in light of your relationship with your relative. We consider the intent of the parties at the time of the transfer as well as evidence of the dealings between the parties both initially and after the event.

In this case, your name was added to the title deed of your relative's property as a joint tenant in 20XX which meant you had a 50% legal interest in the Property. Your relative did this on the basis that should they pass away, you would be the sole legal and beneficial owner of the property.

There is no documentary evidence available to establish that you held your 50% interest in the property on trust for your relative. Therefore, there are no grounds to consider that an express trust existed. Furthermore, there is no court order to establish that a constructive trust was created.

Instead, the facts demonstrate that your relative paid for the Property; however, a 50% interest in the legal title was transferred to another. Therefore, in the first instance, the presumption of a resulting trust arises.

However, the presumption of a resulting trust is rebuttable where specific relationships exist. In this case, the fact that an ownership interest in the Property was transferred to a relative of the purchaser is a rebuttal of the presumption of a resulting trust. Instead, it is considered that in this case there is a presumption of advancement in your favour.

As previously mentioned, 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. 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 your case, it is considered that your relative intended to change the legal and beneficial interest in the Property as in the event of their death the Property would pass to you through survivorship.

Although we sympathise with your situation, in your case, it is considered that there is insufficient evidence to say that there was not an intention to make you both a legal and beneficial owner of the property.

Consequently, CGT event A1 happened to your 50% ownership interest in the property when it was sold.

We note that as you were a legal owner of the property for more than 12 months, the CGT 50% discount can be applied against any capital gain you make.