Private ruling: Capital gains tax
Date of advice: 14 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Did a capital gains tax (CGT) event happen to you, when the property was sold? | A1: Yes. | Q2: Does your share of any capital gain form part of your assessable income? | A2: Yes.

Relevant facts and circumstances: You purchased a property with a relative that you have now sold. The property was purchased in both of your names. You have never lived in the property. At no time do you or your relative receive any form of income from the property. You contributed towards paying the mortgage, rates and insurance. Your relative paid the utilities.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-30 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 106-50.

Reasons for decision: Summary: CGT is the tax that you pay on certain gains you make. You may make a capital gain as a result of a CGT event happening to an asset in which you have an ownership interest. The most common CGT event, CGT event A1, occurs when you dispose of your ownership interest in a CGT asset to another entity. When considering the disposal of your interest in a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the property. In absence of evidence to the contrary, property is considered to be owned by person(s) registered on the title. Taxation Ruling TR 93/32 (TR 93/32) deals with the division of net income or loss between rental property co-owners. If the equitable interest does not follow the legal title, there is some basis for the profit or loss to be distributed on the equitable and not the legal basis. However, paragraph 41 of TR 93/32 states the following: We consider that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title. While this ruling deals with net income or loss from a rental property, paragraph 42 explains that any capital gain or loss should be apportioned on the same basis. In some cases, an individual may hold legal ownership interest in a dwelling for another individual in trust. A beneficial owner is defined as a person or entity that is beneficially entitled to the income and proceeds from the asset. We have considered your situation in order to determine whether a trust has been created in relation to the dwelling and find as follows: • 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 when relating to the transfer of interests in land, must be evidenced in writing. In this case, you do not have any documentary evidence that you had held the property as trustee for your family members. The absence of such a document means that an express trust cannot exist. • A constructive trust is a trust imposed by operation of law. The facts of this case do not indicate the existence of a court order and therefore it can be concluded that a constructive trust does not exist. • A resulting trust, sometimes called an implied trust, is a trust that arises by operation of law in favour of the creator of some prior trust or other interest in certain circumstances, an example would be where a person buys land but places the title in the name of a 3 rd party. In your case there was no prior trust when the property was purchased using funds provided by you and your brother. Given this, there is no implied or resulting trust. In your case, we have found that no trust exists. As such, it is concluded that you held an equitable and legal interest in a share of the dwelling. While we acknowledge your circumstances and your reasons for providing the funds to help your family members to purchase the dwelling, the Commissioner considers that you were the legal and beneficial owner of a share in the dwelling. Therefore, for CGT purposes you are viewed as having disposed of your interest in the dwelling when the dwelling was disposed of. No CGT exemption applies in your circumstances. Therefore your share of any capital gain made on the sale of the property forms part of your assessable income and should be declared on your tax return.