Edited version of private advice

Authorisation Number: 1052257092158

Date of advice: 16 August 2024

Ruling

Subject: CGT - legal vs beneficial

Question 1

Will CGT event A1, or another CGT event, occur when you move title boundaries?

Answer 1

No.

Question 2

Will CGT event A1, or another CGT event, occur when you remove your name from the title of Crown Allotment B?

Answer 2

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

On XX XX 20XX you and your sibling (your Sibling), signed contracts of sale in relation to Crown Allotments A and B, as joint tenants.

A condition of settlement was for you and your Sibling to be granted planning permits for two houses. One on each allotment. This condition was granted by the Council (the Council).

Prior to settlement of the property, a property layout map was drawn, showing how you and your Sibling intended to realign the boundaries to a 50:50 equal split of the land, so that you would each be the sole legal and beneficial owner of a particular area.

At the time of purchase, you assert that the Council and town planner you consulted, advised that splitting the title would be a complicated process and unlikely to be successful.

Based on the advice, you did not pursue splitting the title at the time you acquired ownership of the land.

On XX XX 20XX, you and your Sibling acquired your ownership interest in Crown Allotments A and B.

Crown Allotments A and B are comprised of a combined total of XX acres of land, with your Sibling and yourself, each contributing 50% of the purchase price. No loans were required for the purchase of the land.

You and your spouse built a home and are responsible for Crown Allotment A. This is your main residence.

Crown Allotment A is approximately XX acres in size.

Your Sibling and her spouse built a home and are responsible for Crown Allotment B. This is your Sibling's main residence.

Crown Allotment B is approximately XX acres in size.

The intended boundary alignment requires you to dispose of a portion of Crown Allotment A to your Sibling and realign the boundaries to the 50:50 split, as detailed in the property layout map that was drawn up after you entered into the contract of sale, and before the acquisition date of the land.

On XX XX 20XX, your spouse engaged with the company that manages the mains gas pipeline that runs through the property. The email discussed the installation of infrastructure, and provided a copy of the property layout map that was drawn on XX XX 20XX.

On XX XX 20XX, you last edited a spreadsheet working through the financials between yourself and your Sibling, showing the intended 50:50 split and determining the amount you each had left for the house builds. You provided a copy of this spreadsheet.

On XX XX 20XX, the bank completed the Loan Purpose document that states that you and your Sibling have been approved to build 2 homes on a single block of land which "will be subdivided after construction is complete so each sibling has clear title to their own block and has their own loan."

On XX XX 20XX, the bank loans were drawn down.

Due to being joint tenants on the property title, you and your Sibling were required to guarantee each other's home loans.

On XX XX 20XX, you were corresponding with the Council regarding plans to develop the land. This correspondence occurred prior to the building of the dwellings and had in mind a 50:50 split of the land.

In late 20XX/20XX, the two houses were built and you and your Sibling and your respective families, moved into your dwellings.

Towards the end of 20XX, you approached the bank to source additional funding to complete projects on your own allotment. Your Sibling also wanted to seek a further bank loan to complete separate projects on her land.

The bank advised you that you would need to split the title due to borrowing limits against one title.

On XX XX 20XX, a town planner discovered the crown allotments and never been consolidated. No subdivision or partition was required for the existing lots.

On XX XX 20XX, you received the separate titles for each crown allotment from a conveyancer. You and your Sibling remain joint tenants on both properties.

You will become the sole legal title owner to Crown Allotment A, and your Sibling's will be removed from the title.

Your Sibling will become the sole legal title owner to Crown Allotment B, and your name will be removed from the title.

During the 20XX year, you and your Sibling put together a Farm Use and Land Management Plan for the Council, as part of your planning permit application to show your intended use of the land.

On XX XX 20XX, the conveyancer you engaged at the time of acquisition and when seeking separate titles, completed a statutory declaration, relying on contemporaneous file notes, to demonstrate that their understanding was that you and your Sibling always intended to split the property to equal land size.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 112-25

Reasons for decision

Question 1

Summary

The splitting or change of an asset is not a CGT event in accordance with section 112-25 of the Income Tax Assessment Act 1997 (ITAA 1997). The boundary adjustment does not constitute a CGT event as you will retain your ownership interest in Crown Allotment B.

Detailed reasoning

Section 102-20 of the ITAA 1997 provides that a capital gain or capital loss results from a capital gains tax event occurring.

You intention when acquiring the land, was to adjust the boundaries to reflect your 50:50 ownership interest. Section 112-25 of the ITAA 1997 states that the splitting or changing of assets is not a CGT event, when you retain your ownership interest in the asset. You will retain your ownership interest in Crown Allotment A. Therefore, CGT event A1 will not occur, nor any other CGT event, when you adjust the boundary.

Question 2

Summary

CGT event A1 occurs when there is a change in ownership of a CGT asset under section 104-10 of the ITAA 1997. CGT event A1 does not occur if there is only a change of legal ownership and not a change of beneficial ownership.

Having considered your circumstances and the relevant factors relating to your situation, the Commissioner accepts that although you have a legal ownership interest in Crown Allotment B, it was never intended for you to have any beneficial ownership in the property.

CGT event A1, nor any other CGT event, will occur for you when you remove your name from the title of Crown Allotment B.

Detailed reasoning

Under section 104-10 of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset. You wish to remove your name from the title deed to Crown Allotment B, this is a CGT event. Subsection 104-10(2) explains that you dispose of a CGT asset if a change of 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. It is the beneficial owner that will have a CGT event upon the sale or transfer of a CGT asset.

When considering the disposal of a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the Property. The legal owner of the property is recorded on the title deed for the property issued under that State's legislation. The assumption is that the legal and beneficial ownership is the same.

However, it is possible for the legal ownership of property to differ from the beneficial ownership. An individual can be a legal owner but have no beneficial ownership in an asset. Where beneficial and legal ownership are not the same, there must be evidence that the legal owner holds all or part of the legal interest in 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.

There are limited circumstances where the legal and equitable interests in an asset are not the same and there must be sufficient evidence to establish that the equitable interest is different from the legal title and that a party merely holds their interest in the property for the benefit of the other. In particular, to prove that a different equitable interest exists, there must be evidence of the intention of the parties at the time that they obtained their interests in the property.

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 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.

Application to your circumstances

To determine if you have a beneficial interest in Crown Allotment B, the facts and circumstances surrounding the property's purchase are considered in light of your relationship with your Sibling. We consider the intent of the parties when the property was purchased as well as evidence of dealings between the parties both initially and after purchase.

You and your Sibling paid 50% each to purchase the land. The legal title to the property reflects the equal contributions to the purchase price so that each of you holds your own 50/50 interest. In your case, the documentation provided established your intent to hold Crown Allotment B on trust for your Sibling, from the time that the property was acquired.

Based on the evidence, you have not resided at, nor incurred expenses to improve Crown Allotment B. You were always intending to be the sole beneficial owner of a specific, identified area, being Crown Allotment A, and it was always your intention take steps to have the title for Crown Allotment A in your name only. Similarly, the intention was for Crown Allotment B to be solely owned by your Sibling.

Your actions from the date of entering into a Contract of Sale in relation to Crown Allotments A and B as joint tenants, inform of your intent, given the context of always intending to own your own lot. You and your Sibling have consistently treated parts of the property on which your own dwellings are situated, as your own land. You have separately borrowed money to build homes and also borrowed separately for your own additional projects, for the section of land you are using as your own property.

A CGT event A1 will not occur when you remove your name from the property title held against Crown Allotment B.