Edited version of private advice

Authorisation Number: 1052201142074

Date of advice: 12 December 2023

Ruling

Subject: Capital gains tax

Question

Are you liable for Capital gains tax (CGT)when you transfer the property to your parents?

Answer

No.

You will not be subject to CGT when you transfer the property to your parents as CGT event A1 has not occurred in these circumstances.

While you hold the legal interest in the property, your parents have had a beneficial ownership in the property.

This ruling applies for the following periods:

Year ending 30 June 2024

Year ending 30 June 2025

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You and your parent entered an agreement to purchase a vacant block of land.

The original intention was to build a number of dwellings, your parents were to live in one, and then sell the remaining dwellings.

You and your parent registered as a common partnership to build the dwellings. This partnership never got off the ground.

The verbally agreed equity position for you equated to a percentage of the value of the property.

This equated to the deposit paid on the block of land by you.

The remainder of the purchase price was paid by your parents via a loan with a bank, with a mortgage registered over the property. You did not pay anything toward this loan.

Title was registered for the block of land with you and your parent on the title as joint owners.

At the time of the purchase of the block of land you were living with your parents in their home.

A couple of years later you decided to move out of your parents' home into a home of your own with your then partner.

You did not have enough money for a deposit for a property.

Your parents offered to use the property as additional security, in what they describe as an "guarantor" arrangement.

In the same year, transfer documents were submitted to the State Revenue Office for your parent to transfer their proprietorship in the block of land to you, resulting in you owning 100% of the property.

After this transfer of the interest in the block of land to you, you were then able to satisfy your bank requirement for equity. A Mortgage was registered on the property by the bank.

No formal documentation was made by your parents for the guarantor arrangement.

Shortly after, your parents decided they needed a larger house due to family members living with them.

As the block of land was vacant, your parents decided to build a larger main residence house there.

Your parent paid out your share in the block.

You did not formally transfer the land back to your parents at this point.

There was still a bank security at the time with your bank which was still needed as security to underpin your lending for your residence.

A Statutory Declaration was made in which indicates that you did not have any financial entitlement to the block of land.

You and your parent went ahead and built a home on the land as owner builders.

Your parents paid for all construction costs. All supplier invoices are in your parents' names.

Your parents obtained the building permit and subsequent Certificate of Occupancy in their name, moving into the house a few years after the land was purchased.

Several years later, the mortgage you took out on the property was discharged and the title remained unencumbered from that day forward.

You remain as sole legal owner on the property.

You have never had any obligations nor beneficial rights on the property that is occupied by your parents.

Your parents have paid all maintenance, Council Rates, Water Rates etc, to this day.

You intend to transfer the property into your parents' names.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10(2)

Income Tax Assessment Act 1997 section 118-110