Private ruling: CGT - disposal of a property
Date of advice: 25 May 2023
Published: 10 July 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you required to pay 100% of the capital gain in accordance with your ownership interest in the property? | A1: Yes.

Relevant facts and circumstances: Two friends purchased a property over 20 years ago. The property was used as an investment property from the date of purchase. All income and deductions were declared in each of the individual's tax returns on a 50/50 basis as per ownership. One of the individuals passed away. During the probate of the deceased's will, it was discovered that the property, as per land title office records was not registered/owned as tenants in common but rather as joint tenants. The surviving individual and spouse of the deceased believed that an error had been made by the original acting solicitor and the property should have been registered as tenants in common. The solicitor could not be located. The property reverted to the surviving individual as the joint tenant. The property was sold in the 20XX income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10(2) | Income Tax Assessment Act 1997 Section 106-50

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a capital gains tax (CGT) event occurring. The most common CGT event, event A1, occurs when you dispose of a CGT asset. CGT event A1 occurred when the property was sold. When considering the sale of property, the most important element in the application of the CGT provisions is ownership. It must be determined who had ownership of the property. An individual can be a legal owner but have no beneficial ownership in an asset. Under subsection 104-10(2) of the ITAA 1997, a change of ownership is not deemed to have occurred if you stop being the legal owner of the asset but continue to be its beneficial owner. As a result, it is the beneficial owner of a CGT asset that is liable for capital gains tax upon the sale of the asset if they are deemed to be absolutely entitled to it (section 106-50 of the ITAA 1997). In the absence of evidence to the contrary, the property is considered to be owned by the people registered on the title. However, it is possible for legal ownership to differ from beneficial ownership. Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property on trust for the beneficial owner. You have not been able to provide the Commissioner with any evidence that the property should have been registered as tenants in common rather than joint tenants. The Commissioner can only apply the current law to the set of facts provided by a taxpayer. Consequently, you as the surviving joint owner is liable for capital gains tax on the gain made when the property was sold.