Edited version of private advice

Authorisation Number: 1052363192069

Date of advice: 07 April 2025

Ruling

Subject: Legal vs beneficial ownership

Question

Will a Capital Gains Tax (CGT) A1 event occur under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) when you transfer your legal ownership or sell the property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XX 19XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

In 19XX, the property was purchased.

You loaned your relative an amount to help pay the deposit. Your relative used their savings for the remaining amount.

On XX XX 19XX, your relative signed the mortgage contract as your Power of Attorney (POA) as you were living and working overseas at the time.

You remained overseas until 20XX, when you settled in Australia.

On XX XX 19XX, a letter was issued to your POA confirming the settlement of the property.

In 19XX, your relative fully repaid the deposit loan.

In XX 20XX, you first became aware your POA added your names to the mortgage and the property title as 1/3 each tenant in common. Your relative received a copy of the title document, which showed your names on the property title.

You never intended to take ownership. For 25 years, you proceeded with the idea that the property belonged solely to your relative.

You don't have a record of the deposit loan, or the repayments as you have moved to multiple overseas destinations in the following years and have discarded historic records in the process.

You have not received any rental or other income from the property during your ownership period and have no interest or intention in securing any financial benefit from its possible future sale.

Since the property was purchased in 19XX, your relative and their family have lived at the property and continue to do so.

You and your family have never lived at the property.

Your relative paid the stamp duty and fees relating to the purchase of the property.

You did not make any financial contributions to maintain the property.

You intend to transfer your ownership interest in the property to your relative in the current financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Reasons for decision

Issue

Capital gains tax - legal vs beneficial

Question 1

Summary

We consider that you have insufficient evidence to establish that the equitable interests in the property were different from the legal title.

Consequently, CGT event A1 will happen to you in relation to your share of the ownership interest in the property when it is transferred or sold.

Detailed reasoning

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common CGT event, event A1, occurs under section 104-10 of the ITAA 1997 when there is a change in ownership of a CGT asset.

Accordingly, when applying the CGT provisions on the sale or legal transfer of property, you must consider ownership. and determine if beneficial ownership differs from legal ownership.

An individual can be a legal owner but have no beneficial ownership in an asset. This will ordinarily occur where the property is held on trust.

To establish occasions where legal and beneficial ownership are not the same (i.e. a trust), there needs to be evidence to rebut the standard presumption that legal and equitable interests are the same.

This evidence ordinarily includes:

•                contemporaneous documentation that clearly shows the parties' intentions at the time the property was purchased, and

•                documentation that clearly shows that the parties treated the property in accordance with those intentions during the ownership period.

Gibbs CJ in Muschinski v. Dodds [1985] HCA 78 explained the relevance of contemporaneous evidence:

Where both transferees have contributed to the purchase money, the intentions of both are material, but where only one has provided the money it is his or her intention alone that has to be ascertained. The evidence admissible to establish the intention of the real purchaser will comprise "the acts and declarations of the parties before or at the time of the purchase... or so immediately thereafter as to constitute a part of the transaction" (Charles Marshall Pty. Ltd. v. Grimsley [1956] HCA 28; (1956) 95 CLR 353, at p 365).

In the absence of clear and compelling evidence to the contrary, the property is owned by the people registered on the title.

Trusts may be of three kinds: express, constructive, or resulting.

Express trust

An express trust is one intentionally created by the owner of property 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.

Constructive trusts

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.

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 [1984] HCA 81).

If a resulting trust arises, the party, or parties, who hold the legal title is, or are, presumed to hold the property upon resulting trust in favour of those who contributed to its purchase cost.

That is, 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 other's name.

The presumption of resulting trust may be rebutted by:

•                a presumption of advancement that arises and is not rebutted, or

•                evidence of the contributors' common intention at the time of the property purchase contrary to the resulting trust arising (Calverley v. Green [1984] HCA 81).

Application to your circumstances

In your case, there is no constructive trust as there has been no court or tribunal hearing which determined a constructive trust is in existence.

For the other two types of trust, clear contemporaneous evidence is required to either establish that there was an express trust or to rebut the presumption of advancement such that a resulting trust may have arisen.

We make the following comments in relation to evidence you have provided:

•                You provided evidence that the amount you loaned to your relative was used towards the deposit for the property. This demonstrates a material intention to have ownership in the property as you contributed to the purchase price.

•                Your and relative's signed statutory declaration clearly state your and your relative's intention regarding the property. However, it is a very recent document so has little weight in the absence of contemporaneous evidence.

•                The payment of property expenses by a particular person is not evidence that there was a trust created when the property was purchased.

•                You stated neither you nor your family have resided in the property during your ownership period. Not using a property or asset does not negate your beneficial interest in it.

•                You've provided evidence that your Power of Attorney (POA), signed the mortgage and title while you were overseas. As your POA, they had the legal authority to act on your behalf in your absence.

•                Due to the passing of time and moving to multiple countries over the years you were unable to provide any evidence of a written agreement or correspondence between you and your relative that existed at the time the purchase took place.

None of these documents evidence the intention to hold the property on trust - some point towards the property being dealt with as if the legal and beneficial interest were the same. None of them are contemporaneous.

As a result, we do not consider that you have sufficient evidence to establish that the equitable interests in the property were different from the legal title.

Consequently, CGT event A1 will happen to you in relation to your share of the ownership interest in the property when it is transferred or sold.