Edited version of private advice

Authorisation Number: 1052355145683

Date of advice: 11 June 2025

Ruling

Subject: Legal vs beneficial ownership

Question1

Will CGT Event A1 happen in respect of Person 1 and Person 2's interest in the property at the Property when it is sold, when they only had legal ownership and not beneficial ownership?

Answer 1

No.

Summary

You will not be required to pay capital gains tax (CGT) on your share from the sale of the Property. You have been a legal owner for the ownership period but have had no beneficial ownership.

CGT event A1 (disposal of a CGT asset) occurs when there is a change in beneficial ownership of the asset - not merely a change in legal title.

Person 1 and Person 2 did not hold any beneficial interest in the Property and are therefore not liable to pay CGT on its sale.

Detailed reasoning

Capital gains tax

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or a capital loss is made only if a CGT event happens to a CGT asset. 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. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner that will have a CGT event upon sale of a CGT asset. In some cases, an entity may hold a legal ownership interest in property for another individual in trust.

When considering the disposal of your interest in a CGT asset, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the property. It is possible for legal ownership to differ from beneficial ownership.

We consider in circumstances where the beneficial ownership and the legal ownership are not the same, there must be evidence that the legal owner holds the property on a trust for the beneficial owner. There must be a valid trust over the property and that the equitable owner is entitled to benefit from the property.

Trusts may be of three kinds: constructive, resulting or express. There are limited circumstances where the legal and equitable interests in an asset are not the same, and there is sufficient evidence to establish that the equitable interest is different from the legal title.

Application to your situation

You provided documentation including your parents's will, mortgage details, a deed of guarantee and a release of security. These documents do not confirm that you held the Property on trust for your parents, the beneficial owners.

However, along with the documents and facts provided, we infer from your actions, intentions and responses that you had no beneficial interest in the Property and never intended to do so. You were simply helping your parents, who are retirees, to obtain a residence for their exclusive use and benefit as their own funds were tied up.

You took out a loan to assist them with purchase of the Property. You never used the Property for any purpose and $XXX,XXX of the funds you lent were paid back by your parent from proceeds of the sale of the investment unit and the balance of $XXX,XXX when they settles the Property.

Nothing in your parent's will is construed as conferring any beneficial interest in the Property on you and/or Person 2. Clause 7 of the will states that your parent gives their whole estate to you, Person 1, and to your children should you predecease your parent.

Additionally, you advised that you liaised with your Finance Broker who organised the finance with the finance and a note was written by your Finance Broker on XX XXX 20XX asking you about the arrangement in order to clarify if a tax deduction was planned.

Your response was 'no' as you stated:

•                     that only your parents would be living in the property, and

•                     the loan was to be a home loan as opposed to an investment loan.

Your parent advised that:

•                     they did not have sufficient funds to make an offer on the Property, and

•                     you and Person 2 offered to secure a loan to enable your parents to secure a loan to purchase the Property.

Legal and equitable interests

Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners

As stated in paragraph 41 of TR 93/32, the Commissioner consider 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. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title.

To prove that a different equitable interest exists, there must be evidence that a trust has been established, such that one party is taken merely to hold their interest in the property for the benefit of the other. For example, a trust deed.

Constructive trust arrangement

You will only encounter a constructive trust in unique circumstances.

A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned. It applies whenever equity considers it unconscionable for the party holding title to the property in question to deny the interest claimed by another. The existence of a constructive trust is dependent upon the order of the court.

There is no evidence of a constructive trust arrangement.

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 effected 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. 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'.

The rebuttable presumption of advancement deems the purchaser to have prima facie intended to advance the interests of the family members (i.e., an absolute gift).

Presumption of advancement

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 who stand in particular relationships, such as parents and their children.

Under a 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 the Calverley v Green case, 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.

Legal vs beneficial ownership

Legal ownership

It is, accordingly, the beneficial owner of the CGT asset who is liable to declare the capital gain or loss from the event. As notes by Jagot J, in Ellison & Anor V Sandini Pty Ltd & Ors and further in FC of T v Sandini Pty Ltd & Ors, 2018 ATC 20-651, for these purposes the beneficial owner for CGT event A1 purposes is identified under rules of equity:

... To be a beneficial owner the person must have rights which a court of equity would enforce involving full dominion over the asset:...

Rights which a court of equity would enforce include those governed by equity principles for situations where beneficial ownership may be separated from legal ownership. In situations where legal title may differ from beneficial ownership for property, intent at start of ownership is key element needing to be established for equity principle application purposes. As noted by Gibbs CJ, in Calverley v Green [1984] HCA 81:

...3 Where a person purchases property in the name of another, or in the name of himself and another jointly, the question whether the other person, who provided none of the purchases money, acquires a beneficial interest in the property depends on the intention of the purchaser...9. .... Where one person alone has provided the purchase money it is his or her intention alone that has to be ascertained...12. The extent of the beneficial interests of the respective parties must be determined at the time when the property was purchased...

Beneficial ownership

A beneficial owner is defined in Taxation Ruling IT 2486 Income tax: Children's savings accounts and Taxation Determination TD 92/106 Income tax: who should be assessed to interest earned on a joint bank account?. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset.

In these cases, it will be the beneficial owner of a CGT asset that is liable for any CGT attributable, upon sale of the assets.

Your parents both had a legal and beneficial ownership in the Property as they purchased it to reside there exclusively and obtain all benefits associated with living in it.

You were legal owners in XX% each of the Property as your individual names were on the title for the Property along with both your parents. When one of your parents passed away, the three remaining names on the title were assigned a third legal ownership each.

There was an understanding that the $XXX,XXX you loaned your parents towards the purchase price would be repaid to you on the sale of their existing Property. This does not indicate a beneficial interest in your situation as $XXX,XXX of the funds were paid back to you on XX XXX 20XX (settlement date of your parents' investment property) and the balance of $XXX,XXX to be paid to you by your parent on settlement of the Property. Therefore, the funds had the character of repayments for the loan you took out to assist your parents with the purchase of the Property.

Conclusion

In your case, although there is no evidence that a formal trust deed was in place to confirm that both you and Person 2 each held legal ownership only in the Property in accordance with the title deed, you have provided information to demonstrate that you did not intend to have beneficial ownership in your parents' Property.

Your parents were the legal and beneficial owners, and their intention was to live in the Property exclusively for their own benefit. You did not have beneficial rights to reside in the Property.

Additionally, the Property was not rented at any time, consequently rental income and expenses were not issues that needed to be addressed in this private ruling.

There were no changes made to the Will of your parents which would indicate that you had beneficial ownership in the Property at the time you provided them with the loan of $XXX,XXX.

Payments to you by your parent for the loan you provided them of $XXX,XXX have the character of repayments of the loan. As a result, any capital gain made from the sale of you and Person 2's legal interest in the Property will be disregarded.