Private ruling: Property purchased on behalf of child - absolute entitlement
Published: October 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Did you dispose of the property, for capital gains tax (CGT) purposes, when the property was sold? | A1: No.

Relevant facts and circumstances: Sometime after 20 September 1985, you purchased a property on behalf of your child. A significant amount of the total cost was borrowed from a financial institution. You also gifted an amount of money to your child to complete the purchase. Your child sold other properties which belonged to them and the proceeds from the sale of these properties was deposited into the mortgage account. Sometime later the mortgage was refinanced through another financial institution. The property was always the main residence of your child and grandchildren. Your child treated the property as their own and was responsible for all liabilities and outgoings pertaining to the property. Your child made all mortgage repayments and paid all rates and other outgoings. Your child also carried out significant improvements to the property. The property was sold some time in the relevant income year. You have never derived any benefit from the property. You have received no income, nor did you receive any proceeds when the property was sold. The whole of the sale proceeds were paid to your child. With the exception of the amount of money gifted to your child to complete the purchase, you have not paid for any other outgoings or liabilities pertaining to the property. You have provided copies of Statutory Declarations which evidence that you merely held the property in trust for your child.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20, | Income Tax Assessment Act 1997 Section 104-10 and | Income Tax Assessment Act 1997 Section 106-50.

Reasons for decision: Summary: In the absence of evidence to the contrary, property is considered to be owned absolutely by the person, or persons, named on the title. However, it is possible for legal ownership to differ from beneficial ownership. In such cases, a trust relationship exists with the legal owner holding the property on trust for the beneficial owner. Where a property is held on trust for another person who is absolutely entitled to the property, any act done by the trustee is taken to be an act done by the beneficiary. Therefore there are two issues that need to be considered: · did you hold the property on trust for your child, and · if yes, was your child at all times absolutely entitled to the property. | Detailed Reasoning - Express trust: An express trust is one intentionally created by the owner of the property in order to confer a benefit upon another. It is created by express declaration, which can be effected by some agreement or common intention held by the parties of the trust. For an express trust to be created it is necessary that there is certainty of the intention to create a trust, certainty of the subject matter of the trust and certainty as to the object of the trust. While trusts can be created orally, all State Property Law Acts contain provision that preclude the creation or transfer of interest in land except if evidenced in writing. In other words, an express trust created over land must be formalised in writing. The declaration does not necessarily need to be evidenced in writing at the time that the trust was created, it may be written at a later date. In your situation, the Statutory Declarations that you provided clearly support the fact that the property was held on trust. Accordingly, the Commissioner is satisfied that an express trust was created over the property and you merely held the property as trustee on behalf of your child. | Detailed Reasoning - Absolute entitlement: It is considered that a beneficiary is absolutely entitled to an asset of a trust as against the trustee if the beneficiary is: · absolutely entitled in equity to the asset and thus has a vested, indefeasible and absolute interest in the asset, and · able to direct how that asset shall be dealt with. In your circumstances, your child had a vested, indefeasible and absolute interest in the property and was able to direct how the property is dealt with. Your child provided the majority of the finances towards the purchase of the property and paid all relevant expenses relating to the ownership of the property. Your child was able to make all decisions in respect of the property and it is considered that your child had all the ownership rights that would normally apply to a property's beneficial owner. Therefore, your child was absolutely entitled to the asset and it is considered that they were the beneficial owner. As your child was the absolutely entitled beneficial owner of the property, the disposal of the property will be taken to have been done by your child.