Edited version of private advice

Authorisation Number: 1052198244498

Date of advice: 30 November 2023

Ruling

Subject: Legal and beneficial ownership

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.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your sibling purchased a property in 19XX as joint tenants for $XXXX.

The property was purchased for your parent's use. The property was initially intended to be used to house yourself and your siblings.

Your parent did not have sufficient funds, nor the means to obtain or service a loan, therefore your parent was unable to purchase the property in their own name.

You secured finance of $XXXX to cover the shortfall price.

All loan repayments were made by your parent.

Your parent paid for some of the expenses associated with the property in cash.

The house was maintained by your parent.

On XX/XX/20XX, your parent passed away due to health issues. Your parent was still living in the property at the time of their death.

There was a delay in selling the property as your relatives had been residing at the property to provide care for your parent. They continued to live at the property on the understanding that there was a provision in the will for them to do so.

Your relatives moved out of the property when they left the area in late 20XX.

The property sat vacant for an extended period as the family could not decide what to do with it. The property was never rented and was also subject to several break ins.

You and your spouse made some improvements to the property to prepare it for sale.

The property was sold in XX/20XX.Once the property was sold, the proceeds were distributed in accordance with your parent's will, which was dated XX/XX/20XX. You received a portion of the proceeds of the property. You paid for all legal fees and other expenses.

Limited records have been kept for the property.

Several attempts were made to transfer the title of the property from your name into your parent's name, however the cost of doing so prevented the transfer on each occasion.

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 106-50

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 118-110

Reasons for decision

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 and the property was not held on resulting trust. 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.

Detailed reasoning

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.

The property is a CGT asset under 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.

Legal v beneficial ownership

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. A beneficial owner is defined as a person or entity who is beneficially entitled to the asset. An individual can be a legal owner but have no beneficial ownership in an asset.

Where the 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.

It is the beneficial owner who is liable for any tax consequences resulting from a CGT event.

Resulting trusts

A resulting trust may arise where the contributions to the purchase cost of the property are not proportionate to the legal interests in the property. If an individual purchases a property, but the money to buy the property is provided by someone else, it is presumed that the property is held on trust for the benefit of the individual who provided the purchase money.

The presumption of a resulting trust can be rebutted by evidence of the parties intentions at the time of purchase

Main residence exemption

Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a capital gains tax (CGT) event that happens to a dwelling that is your main residence.

A capital gain or capital loss you make from a CGT event that happens to your main residence is disregarded if:

• you are an individual
• the dwelling was your main residence, and throughout your ownership period the property was not used to produce assessable income, and
• any land on which the dwelling is situated is not more than two hectares.

Application to your circumstances

You and your sibling purchased the property and are listed as legal owners of the property. The property title was never transferred to your parent and there is no formal trust deed in place to alter the position that you hold both legal and beneficial ownership.

Although your parent's will states that the property belonged to your parent and states that you were to be allocated a percentage of the property, the will is dated the same year that your parent passed away. Outside of this, there is no other information to demonstrate that you intended to hold the property on trust for your parent.

The fact that your parent made all the loan repayments is not sufficient to establish the existence of a resulting trust. These payments did not change the beneficial interests established at the purchase of the property as they were not payments of the purchase price. Rather, they were payments made to secure the release of the charge you had created over the property.

As you as your sibling are considered to be the beneficial owners of the property, CGT event A1 occurred when your legal ownership ended.

The main residence exemption is not relevant in this case as your parent did not hold ownership of the property at any point in time.

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 more than twelve months, you are eligible for the CGT discount.