Edited version of private advice

Authorisation Number: 1052270192253

Date of advice: 17 July 2024

Ruling

Subject: CGT - legal vs beneficial

Question

Did CGT Event A1 happen when you transferred the title of the property to your relative?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

You purchased the property from your relative in 20XX.

No money changed hands and your relative continued to live in the property and maintain the property as though it was still their home.

There was no document or signed agreement between you and your relative at the time which outlined the arrangement and ownership details.

There was no trust arrangement in place at the time when the title was transferred into your name.

You obtained the property at the time to assist you with having enough equity to borrow funds for your benefit.

On the XX of XX 20XX the property was transferred back to your relative's name.

No money changed hands when you transferred the title back to your relative's name.

Stamp duty was paid twice, once in 20XX and again in 20XX.

The capital gain has been included in your 20XX tax return with the 50% discount applied with the asset being held greater than 12 months.

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) provides that you make a capital gain or loss as a result of a CGT event occurring to a CGT asset that you have an ownership interest in. For this reason, it is important to establish who is the owner of a CGT asset at the time a CGT event occurs.

Under section 104-10 of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset. The disposal of a CGT asset takes place if a change of ownership occurs from the taxpayer to another entity, whether because of some act or event or by operation of law.

When you sell or dispose of an asset

If you disposed of your ownership interest assets during the year, such as property or shares, you need to work out your capital gain or loss for each asset.

If you received no capital proceeds from a CGT event, you are taken to have received the market value of the CGT asset that is the subject of the event. The market value is worked out as at the time of the event.

You are required to obtain a market valuation when transferring property or shares between related parties, such as family members.

Legal and beneficial ownership

The ATO considers that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title.

A person's legal interest in a property is determined by the legal title to that property under the property law legislation in the State or Territory in which the property is situated.

Where it is asserted that the beneficial ownership and legal ownership of a property are not the same, there must be evidence to show that the legal owner holds the property in trust for the beneficial owner. Relevant evidence includes information that evidences the intentions of the parties at the time the property was purchased or transferred from one legal owner to another, and evidence of contributions made by the parties towards the purchase price.

Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) contains guidance on the issues involved where the equitable interest in a property may not follow the legal title.

As stated in TR 93/32 paragraphs 38 to 41, It has been said that if the equitable interest does not follow the legal title, there is some basis for the profit/loss to be distributed on the equitable and not the legal basis.

It was explained in Calverley v Green 56 ALR 483, Dean J said (at p 500):

'It is simply that there are certain relationships in which equity infers that any benefit which was provided for one party at the cost of the other has been so provided by way of "advancement" with the result that the prima facie position remains that the equitable interest is presumed to follow the legal estate and to be at home with the legal title or, in the words of Dixon CJ, McTiernan, Fullagar and Windeyer JJ in Martin v Martin (1959) 110 CLR 297 at 303, that there is an "absence of any reason for assuming that a trust arose".'

Cases where the title includes the name of a person who is a nominee or trustee, must be decided on an individual basis on the evidence available to establish that fact. Authority can be found in Napier v Public Trustee (Western Australia) 32 ALR 153 where the court accepted there was sufficient evidence to establish that the equitable interest was different from the legal title. Aickin J said (at p 158):

'The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis ) there is a presumption of advancement so that the beneficial as well as the legal interest will pass. Each of the presumptions may be rebutted by evidence.'

Any capital gain or loss should also be apportioned on the same basis as the rental income or loss.

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.

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. As noted by Gibbs CJ, in Calverley v Green [1984] HCA 81:(Calverley v Green case). 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, including:

•         where there is evidence of a specific intention to hold beneficial interest in the property for another person who contributed no amount, or a lesser amount, towards the purchase price.

•         where the presumption of advancement applies.

Presumption of advancement

The presumption of advancement is an equitable principle where a person puts property in the name of another person with whom they have a close familial relationship. The presumption only applies to transfers and purchases made by people who stand in particular relationships, including parents and their children.

Under the 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, three important principals in relation to the presumption of advancement Gibb CJ found:

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

•         The presumption of advancement may be rebutted by evidence of the actual 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 circumstances

You stated that the title was transferred to you to assist you with having enough equity to borrow funds and your relative retained the beneficial ownership of the property.

You did not provide any evidence to show that there was an intention that you would merely hold the legal title to the property and your relative would retain the beneficial interest.

Therefore, you have not established that the legal and beneficial ownership are not the same. The presumption of advancement has not been rebutted.

A CGT event A1 has occurred and you have correctly included the event in your 20XX Income Tax Return with the 50% discount applied as the asset was held for a period greater than 12 months.