Private ruling: Capital gains tax and beneficial ownership
Date of advice: 29 March 2019
Published: May 2019
Ruling period: 30 June 2018 to 30 June 2019

Ruling: Q1: Do I have beneficial ownership in the dwelling? | A1: No | Q2: Can I apply the main residence exemption under subdivision 118-B of the Income Assessment Act 1997 (ITAA 1997) to the sale of the dwelling? | A2: No

Relevant facts and circumstances: Your spouse purchased the dwelling as sole owner, with the intention of providing a residence for you and your children while they resided and worked overseas. You resided at the dwelling with your children for a three year period and considered this your principal place of residence and main residence for income tax purposes. You did not hold title to any other dwelling during your spouse’s entire ownership period. The property was then continually rented for the next three years, due to you relocating from Australia to overseas to be with your spouse. There is and was no trust over the property. Your spouse reported the full capital gain as the sole owner of the property on their income tax return after the sale of the property.

Relevant legislative provisions: Income Assessment Act 1997 section 102-20 | Income Assessment Act 1997 section 104-10 | Income Assessment Act 1997 subdivision 118-B Summary | When considering the disposal of a property, the most important element in the application of CGT provisions is ownership. It must be determined who is the legal owner of the asset. In your case you are not considered to have beneficial ownership of the property and are not liable for the pay tax on the capital gain on the sale of the property. | Detailed reasoning | Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. The property is a CGT asset (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. | A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset. | We consider in extremely limited 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. | In your case, the information provided by you there was no trust in place and you did not have legal title on the property, the documentation also supplied by you is not sufficient evidence to state you have beneficial ownership and therefore entitled to the main residence exemption on the sale of the dwelling. Your spouse as the legal title owner is responsible for the CGT implications on the sale of the dwelling.