Edited version of private advice

Authorisation Number: 1052327565331

Date of advice: 9 January 2025

Ruling

Subject: CGT - beneficial ownership

Question

Are you liable to pay capital gains tax (CGT) upon the sale of a property (Property), that was held on trust for the benefit of your parent A, in accordance with section 102-20 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX to 30 June 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

Background information

The Property

1.    In the 20XX year, your parents sold their family home following a marriage breakdown. The family home was an asset of the Family Trust. Your parents received an equal share of the sales proceeds.

2.    In 20XX, a bank account in the name of the Family Trust transferred your parent A's share of the sale proceeds to a bank account in your name. Your parents were joint signatories on Family Trust account.

3.    The amount was transferred to your bank account and were to be used to buy a property in Australia on behalf of your parent A, who wanted a home.

4.    In 20XX, you an amount of funds belonging to your parent A from your bank account into a term deposit in your name with that bank. The interest received was reinvested into the term deposit and the funds remained in the term deposit until your parent A decided to purchase a property.

5.    Two transfers were made to third parties out of the amount held in that bank from the proceeds of the term deposit.

6.    During the time that the funds belonging to your parent A were in the term deposit account, your parent A accessed the funds to transfer some funds to their child for their financial assistance.

7.    In 20XX, you transferred funds out of the term deposit account and into your bank account with the bank. Your parent A had decided to purchase a property. The term deposit account was subsequently closed.

8.    The funds were held in your bank account until 20XX when you transferred an amount to a real estate agent, representing a partial deposit to purchase a house and land package that your parent A had decided on.

9.    On 20XX, you transferred further funds to a finance broker, being the balance of the deposit to purchase a house and land package.

10.    You agreed to loan your parent A a small sum to assist them with the purchase of the Property.

11.    You and your parent A made the following verbal agreement in respect of the Property that was not formally documented:

a.            your name would be on the title deed as the legal owner of the Property

b.            you would assist your parent A to obtain finance for the Property with the finance broker of their choice as they were previously made bankrupt in 20XX, and

c.            your parent A would be the beneficial owner of the Property for use as their main residence until the Property was sold.

12.    On 20XX, you were the sole purchaser of the land on which the Property is situated.

13.    Your sole incentive and motivation for entering the agreement was to help your parent A secure a stable home to be used as their residence. Due to your parent A's bankruptcy, their age and marriage breakdown with your parent B, they was not in a financial position to obtain a loan in their own name.

14.    The Property has always been used as your parent A's main residence and has never been used for investment purposes.

15.    Your parent A has been responsible for all the costs associated with the Property, including mortgage repayments, utility expenses, insurance, maintenance expenses and all improvements and additions, including landscaping. At no time did you pay for or have constructive liability for any of the costs associated with the Property.

16.    Your parent A had full authority to make decisions in respect of choosing the location of their home, when they wanted to buy, selecting the builder, the bank from which to obtain a mortgage, and when to sell their residence.

17.    You have never derived any rental income from the Property. You have not made any financial benefit from the Property.

18.    Your younger sibling lived at the Property with your parent A. they did not pay rent to either you or your parent A.

19.    You never lived in the Property.

20.    The Property was acquired for the sole purpose of providing a main place of residence for your parent A. It was intended that your parent A would have beneficial interest in the Property despite the title to the Property being in your name.

21.    At all times, you have only held a legal interest in the Property whereas your parent A held a beneficial interest in the Property.

22.    You have provided various contemporaneous documentation from the time you purchased the Property to demonstrate that the Property was intended to belong to your parent A and not you.

Sale of the Property

23.    The Property was sold under contract on 20XX with settlement shortly after. The mortgage on the Property was transferred to your parent A's new residence (new residence) with the balance of the sales proceeds transferred from your Parent A's bank account to the mortgage facility over the new residence.

24.    You have entered into a bare trust arrangement in respect of your parent A's new residence upon advice of a lawyer. A Declaration of Trust has been executed on 20XX which states that you hold the new residence on trust for the sole benefit of your parent A and you hold the title purely for legal purposes. Your parent A paid the legal fee to establish the bare trust.

Information provided

25.    You have provided a number of documents containing detailed information in relation to your application.

26.    We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

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

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated.

Question

Are you liable to pay capital gains tax (CGT) upon the sale of the property at xxx (Property), that was held on trust for the benefit of your parent A, in accordance with section 102-20?

Summary

You are not considered to be the beneficial owner of the Property and will not be required to report a capital gain when the Property was sold in accordance with section 102-20.

Detailed reasoning

Capital gains tax

1.      Section 102-20 states that a capital gain or loss is made only if a capital gains tax (CGT) event happens to a CGT asset.

2.      CGT event A1 happens if a taxpayer disposes of a CGT asset under section 104-10. 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.

3.      Land and buildings are CGT assets under section 108-5.

Legal and beneficial ownership

4.      A legal owner is the individual who has their name on the legal documents associated with the CGT asset, such as on the title deed for a property.

5.      A beneficial owner is a person or entity who is beneficially entitled to the income and proceeds of an asset.

6.      The beneficial interest will normally follow the legal interest.

7.      However, it is possible for legal ownership to differ from beneficial ownership. An individual can be a legal owner but have no beneficial ownership in an asset.

8.      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 on trust for the beneficial owner.

9.      Guidance on issues around equitable interest in a property not following the legal title is detailed in TR 93/32.[1] The Commissioner considers it will only be in extremely limited circumstances where sufficient evidence is provided to show the beneficial interest is different to the legal interest.[2] It is assumed that where taxpayers are related, such as a husband and wife, the beneficial ownership is exactly the same as legal ownership.

10.      Legal and equitable interests will not be the same where it is established that a resulting trust arose. If the beneficial owner is absolutely entitled to a CGT asset as against the legal owner, any act done by the legal owner is treated as if it were carried out by the beneficial owner.

11.      In the absence of evidence showing there is a valid trust over the property and that the beneficial owner is entitled to benefit from the property, the property is considered to be owned by the individual registered on the title deed.

Establishment of a trust

Express trust

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

13.      For an express trust to be created, it is necessary that there is certainty of the intention to create a trust, the subject matter and the object of the trust.

Resulting or implied trusts

14.      A resulting trust may arise where the contributions to the purchase price of the property are not proportionate to the legal interests in the property. If an individual pays to acquire a property, but legal title is transferred to another person at their direction, the presumption of a resulting trust arises as 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 name of another individual.

15.      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'.

16.      The rebuttable presumption of advancement deems the purchaser to have prima facie intended to advance the interests of the family members, such as by way of an absolute gift.

Presumption of advancement

17.      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 in particular relationships, such as parents and their children.

18.      The presumption of advancement operates to prevent a resulting trust from arising because the relationship between the relevant parties provides a reason against presuming a trust. The presumption operates on the hypothesis that, because a certain relationship exists between 2 parties, a benefit provided by one party to the other at the cost of the first was intended to be provided by way of 'advancement'.[3]

19.      The presumption of advancement may be rebutted by evidence of the actual intention of the purchaser at the time of purchase. Evidence is required to demonstrate that the purchaser did not intend the property to be a gift to the other party by reason of their relationship.

20.      Generally, the dealings, documents and communications at the time of the purchase will be examined to determine whether there was intention to retain a beneficial interest.[4]

Absolute entitlement

21.      If a taxpayer is absolutely entitled to an asset as against the trustee (disregarding any legal disability), the CGT provisions apply to an act done by the trustee in relation to the asset as if it were done by the taxpayer (section 106-50). For example, if the asset is sold by the trustee, any capital gain or loss from CGT event A1 (disposal of a CGT asset - section 104-10) arises in the hands of the beneficiary/taxpayer and not in the hands of the trustee.

Meaning of 'absolutely entitled'

22.      To be 'absolutely entitled' to an asset as against the trustee of a trust, a beneficiary must have both a vested and an indefeasible interest in an asset, and to be able to demand transfer of the asset by the trustee. It is not sufficient that the beneficiary merely has a right or entitlement under the deed to be paid a benefit. The beneficiary must have an immediate entitlement to demand transfer of the particular asset in circumstances where that entitlement cannot be defeated.

23.      The Commissioner's views on the meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in the CGT provisions are set out in Draft Taxation Ruling TR 2004/D25 Income tax: capital gains: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (TR 2004/D25).

24.      TR 2004/D25 explains that the core principle underpinning the concept of absolute entitlement is the ability of a beneficiary who has a vested and indefeasible interest in the entire trust asset to call for the asset to be transferred to them or to be transferred at their direction. See the rule in Saunders v Vautier (1841) 4 BEAV 115; 79 ER 282.

25.      The most straightforward application of the core principle is one where a single beneficiary has all the interests in the trust asset. Generally, a beneficiary will not be absolutely entitled to a trust asset if one or more other beneficiaries also have an interest in it.

26.      A single beneficiary who has all the interests in a trust asset will be absolutely entitled to that asset as against the trustee for the purposes of the CGT provisions if the beneficiary can (ignoring any legal disability) direct the trustee to transfer the asset to them or to transfer it at their direction.

Application to your circumstances

27.      The Property was registered solely in your name upon its purchase on 20XX. You were worried that your parent A would not be able to obtain a mortgage as they were made bankrupt in 20XX. As such, you agreed to have your name on the title of the Property and obtain a mortgage from a bank in your name.

28.      The title to the Property remained in your name throughout the entire period of ownership. At the time of entering into the purchase contract for the Property, it was verbally agreed between you and your parent A that you acquired your legal ownership without any duty except for your name to appear on the Property's title and on the mortgage documents. There was no written trust agreement to alter the position that you hold both legal and beneficial ownership. As such, there is no evidence that an express trust existed to demonstrate that you intended to hold the Property on trust for the beneficial owner, being your parent A.

29.      In determining whether there was a resulting trust between you and your parent A consideration must be given as to who contributed to the purchase price. You did not fund the purchase of the Property. The deposit was sourced from your parent A's share of the proceeds arising from the sale of their former matrimonial home. Bank statements have been provided to show the transfer of funds from into your bank account to pay for the deposit on the land, stamp duty and the cost of building a dwelling.

30.      The fact that your parent A made all the loan repayments is not, in isolation, sufficient to establish the existence of a resulting trust. It would also not be construed as a contribution to purchase price. However, as you were able to provide bank statements to demonstrate that the source of the deposit on the Property originated from your parent A, this alters the beneficial interest established at the purchase of the Property as they were payments of the purchase price.

31.      Typically, a presumption of resulting trust arises where a person who has provided, or made contributions to, the purchase price of a property, which is held in the name of another person, intends to have a beneficial interest in the property. However, that presumption is subject to an exception that, in the case of purchases by a parent in the name of a child, there is a presumption the parent's contribution was an 'advancement' or gift. The presumption of advancement is liable to being displaced or rebutted by evidence, including the circumstances of the particular transaction and the true intentions of the parties, such that a trust was intended.

32.      In this matter, the presumption of advancement applies as the relationship involves a parent to child, causing the presumption of resulting trust not arising. As the purchase money was transferred to your account, to purchase the Property in your name, evidence is required to show that the Property was not intended as a gift to you.

33.      The question of intention as to whether a trust arises is entirely one of fact, and the facts of this matter do give rise to such an intention. You have provided contemporaneous correspondence exchanged between you and your sibling at the time of purchasing the Property to show that your parent A had a deposit, that they would be buying the Property and making repayments, but the mortgage would be in your name. Similarly, in another exchange with your older sibling, they thanked you for helping your parent A secure a mortgage on the Property.

34.      To support the correspondence with your siblings, you have also provided the following documentation to show that it was your intention for your parent A to be the beneficial owner of the Property and that you were merely facilitating their acquisition of the Property by having your name registered on the title deed and mortgage:

a.            emails between your parent A and a bank officer discussing your parent A's desire to not renew the term deposit at maturity, but to use the funds for a property deposit, and the bank officer confirming that they require your instructions to proceed

b.            email from a finance broker on 20XX to confirm that you may not require loan protection as your parent A is paying the mortgage

c.             email from a conveyancer confirming that they will act on your behalf in respect of the purchase of the Property but requesting your authorisation to communicate with your parent A and

d.            email from you to the finance broker confirming your desire to secure the Property for your parent A when obtaining approval for finance on the Property.

35.      It is noted that your parent A occupied the Property as their principal place of residence and you never resided at the Property. You did not have any involvement with the Property once the Property was registered in your name. For example, your parent A made decisions in respect of selecting the location, the builder of the Property and landscaping. Since your purchase of the Property, your parent A paid for all the property-related costs, including the mortgage, rates, services and all outgoings. You did not derive any rental income from the Property during your ownership period. There was no intention for you to benefit from the future sale of the Property as you did not receive any capital proceeds from the sale of the Property when it was sold. Instead, the net sales proceeds were transferred and applied to the mortgage over your parent A's new residence.

36.      These items set out in the preceding paragraph, in isolation, are insufficient to indicate the intention of you and your parent A at the time of purchase.

37.      However, in conjunction with the correspondence provided from around the time of purchase with your siblings, your bank, the finance broker and conveyancer, it is satisfactory to establish that your parent A did not intend for the property to be a gift to you by virtue of your parent-child relationship.

38.      As such, the Commissioner accepts that the legal and equitable interests in the Property were not the same and you had no beneficial interest in the Property. A resulting trust arose with you holding your legal ownership on trust for the benefit of your parent A, being the person who provided the purchase money.

39.      Under section 106-50, from the time a beneficiary of a trust becomes absolutely entitled to a CGT asset as against the trustee (disregarding any legal disability), the asset is treated as being an asset of the beneficiary, rather than as an asset of the trust.

40.      Your parent A was the sole beneficiary of the trust, and the trust asset (the property) was held solely for their unrestricted use and benefit. As such, your parent A was absolutely entitled to the Property as against you, the trustee. Therefore, the Property is treated as being an asset of your parent A since its acquisition pursuant to section 106-50.

41.      In these circumstances, it can be reasonably concluded that at the time your legal ownership ended when the Property was sold in the 20XX income year, you were not liable to pay tax on the capital gain.

[1] Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32).

[2] Paragraph 41 of TR 93/32.

[3] Commissioner of Taxation v. Bosanac [2021] FCAFC 158 at paragraph 27.

[4] Commissioner of Taxation v. Bosanac [2021] FCAFC 158.