Private ruling: Capital gains tax
Date of advice: 2 May 2019
Published: June 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you liable for capital gains tax (CGT) on only a portion of your XX% legal ownership interest in the property? | A1: Yes

Relevant facts and circumstances: You acquired a XX% legal ownership in another individual’s main residence (the property) when that interest was transferred to you by the individual in 19XX. That individual passed away in 20XX (the deceased). The administrator of the deceased’s estate commenced legal proceedings against you over your interest in the property. You each submitted your own statements of defence and counterclaims. These documents form part of the arrangement being ruled on and should be read in conjunction with the description of the arrangement. The executor claimed that you held your entire ownership interest in trust for the deceased (and subsequently their estate). You claimed that you held a portion of your ownership interest in trust for the deceased (and subsequently their estate) but beneficially owned the remaining portion of your legal interest. A settlement was reached in 20XX. Under the settlement you were to receive a portion of the net proceeds of sale that was part way between the 0% that the executor had claimed you were beneficially entitled to and the XX% that you claimed you were beneficially entitled to. The property was placed on the market as soon as practical and settlement occurred in 20XX. You received the portion of the net proceeds of sale agreed to under the settlement.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 106-50

Reasons for decision: Summary: CGT event A1 occurs when you dispose of a CGT asset (section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)). The disposal of a CGT asset takes place if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. In some cases, an individual may hold a legal ownership interest in a property for another individual on trust. Where the legal and beneficial ownership of an asset is different, a trust situation occurs. The CGT provisions do not apply to the legal owner of an asset if the legal owner held it on trust for another person and the other person was absolutely entitled to that asset as against the trustee (section 106-50 of the ITAA 1997). Thus we need to determine if you held any of your interest in the property on trust and if so, whether the beneficiary had an absolute entitlement to the portion of the interest held on trust. Having regard to all the information available, it is accepted that you were only beneficially entitled to ZZ% of the property. The remaining portion of your legal interest was held in trust for the deceased (and subsequently their estate). It is also accepted that the deceased (and then subsequently their estate) was absolutely entitled to that portion held in trust as they could have called for that portion to be transferred to them. Consequently, you are not liable for CGT on your entire XX% legal ownership interest in the property. Rather, you are only liable for CGT on your ZZ% beneficial ownership interest in the property.