Edited version of private advice

Authorisation Number: 1052376917070

Date of advice: 16 May 2025

Ruling

Subject: CGT - legal vs beneficial

Question 1

Will a CGT event A1 happen when you transfer the title of the property to your child?

Answer 1

Yes

This ruling applies for the following periods:

30 June XXXX

30 June XXXX

30 June XXXX

30 June XXXX

30 June XXXX

30 June XXXX

The scheme commenced on:

XX XXXX XXXX

Relevant facts and circumstances

In XXXX, your person C resided in State B and health issue.

In XXXX, due to hardship after the health issue, person C declared voluntary bankruptcy for a period of X years

The X year voluntary bankruptcy period ended in XXXX.

Due to the voluntary bankruptcy person C's home was lost and they came to live with you in State A.

In XXXX, it was decided that person C required their own place to live after receiving a lump sum payment from their superannuation.

This home was to be located in State A, where you currently reside so that person C could be close to medical facilities due to the ongoing health issues.

During the voluntary bankruptcy period ended sometime in XXXX, your person C was unable to rent or legally or beneficially purchase a home on their own until the voluntary bankruptcy period ended.

You then decided that you would take out a home loan to purchase a new home for person C in your names.

You located a property in State A for $XXXXXXX

XX XXXX XXXX, you opened a XXXXX Bank account in the names of Person A & Person B (Person C's name was not included) you deposited a $XXX amount into this account.

On XX XXXX XXXX, your child withdrew $XX,XXX from thier account by way of cheque in which you then you deposited this into the XXX Bank account on the same day.

The $XX,XXX was used as a deposit to purchase the property located in State A.

On X XXXX XXXX, you took out a XXXX Mortgage loan in your names only, (Person C's name was not included) in the amount of $XXXXXX this included:

•                Draw Down Nett Advance $XXXXX

•                Settlement Fee $XXXX

•                Application Fee $XXXX

•                Agent Lodging Fee $XXXX

•                Document Preparation Fee $XxX

•                Search Processing Fee $XXX

•                Bank Cheque Fee $XXX

•                Registration Fee $XXX

When you purchased the property in State A, due to person C's voluntary bankruptcy the property title was put into your names only and remains in your names.

After Person C's voluntary bankruptcy period ended you looked into transferring the property into their name, however due to the cost involved you did not do this.

At this time you had not set up or obtained any written agreements between yourselves and Person C that you were purchasing the property for Person C.

During the periods XX XXXX XXXX till XX XXXX XXXX, a deposit of $XXX each fortnight was paid into your XXX Bank account, this was reported as:

•                From X XXXX XXXX to 7 X XXXX XXXX as Rent - XXXX.

•                From X XXXX XXXX - X XXXX XXXX as E-Banking Trans to XXXX - XXXX

All the mortgage payments were transferred from the XXXX Bank account to the XXXX Mortgage account.

In or around XXXX XXXX, you added Person C's name to the XXXX Bank account.

In XXXX XXXX you transferred the mortgage loan account from the Mortgage account to an investment loan account with this you also set up and offset account.

Person C who was now out of their Voluntary Bankruptcy period was not added on this investment loan account.

In XXXX XXXX, the Bank account was closed.

The transfer of the property title from your names to Person C will depend on the cost involved.

Please Note:

The property was not purchased so that both Person A & Person B could earn assessable income, it was purchased so that Person C would have a home to live in.

So this is not considered a rental property, and no rental income needs to be reported

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 118-130

Reasons for decision

Issue

CGT on transfer if Property Title

Question

Will a CGT event A1 happen when you transfer the title of the property to your child?

Summary

You are considered to be both the legal and beneficial owner of the property located in State A and will be required to pay capital gains when you transfer the property title to Person C in accordance with 102-20

Answer

Yes

Detailed reasoning

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 (2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you dispose of a CGT asset when you either enter into a contract for its disposal, or where no contract exists, when the change of ownership occurs.

Under Section 104-10 (4) of the ITAA 1997 explains when you will make a capital gain or capital loss from the disposal of your CGT asset.

Under Section 118-130 of the ITAA 1997 states that for a dwelling that you acquire under contract, you have an ownership interest in it from the time when you obtain legal ownership of it and until your legal ownership interest in the dwelling ends.

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 (beneficial), interests are not the same and that there is sufficient evidence to establish that the beneficial 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. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title.

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.

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 have not provided the Commissioner with sufficient evidence that Person C had a beneficial ownership of the property when it was acquired. As Person C was still within their voluntary bankruptcy period, Person C was not able to own legally or beneficially a property. A CGT event A1 will occur for you on your disposal of your interest under section 104-10 of the ITAA 1997, with both legal and beneficial interest having been held by yourselves, at all times.

Documentation provided to support that the property was purchased for Person C is inconclusive, while some of it shows that monies coming out of the Bank account are in support of some of Person C's bills, not all the bills are exclusively in Person C's name. The documentation does not show an intention that your child receive beneficial ownership at the time of purchase or at a later date.

Any capital gain or loss you make from the removal of your names from the property title cannot be disregarded and must be included in your income tax return in the relevant income year.

As the property was held for over 12 months, there is a CGT discount of 50%, which means that you pay tax on half of the net capital gain on that asset.