Private ruling: Capital gains tax
Date of advice: 3 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will a capital gains tax (CGT) event occur when you transfer your ownerships of the house to your relative? | A1: No. | Q2: Can you apply the main residence exemption upon the disposal of your property? | A2: Yes.

Relevant facts and circumstances: Your relative sold their family home and bought another property. They were concerned their bank was going to reclaim the property as they were in arrears on their home loan. At the time your relative was suffering from an illness. A professional suggested that the new property should be acquired in your name. Your relative supplied the funds for purchase and have lived in the property and paid all expenses. You have never received any rental payments. You intend to transfer the property to your relative. You and your spouse also purchased a home. The land is less than 2 hectares and you have never used the property to produce assessable income. You do not own any other properties.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(2)

Reasons for decision: Summary: CGT event A1 happens if you dispose of a CGT asset as per subsection 104-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 104-10(2) of the ITAA 1997 provides that you dispose of a CGT asset if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law. | Detailed Reasoning - Beneficial ownership: A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset. A legal owner is the individual who has their name on the legal documents associated with the CGT asset, an example would be the title deed for a property. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner of a CGT asset that is liable for capital gains tax upon sale of the assets. In some cases, an entity may hold a legal ownership interest in property for another individual in trust. In this case, you purchased a property in you own name which was lived in by your relative. This was done on the advice of professionals as your relative was unwell. Your relative provided the proceeds for the purchase and has paid for all household expenses. We consider that although you hold the legal title to the property, you are not the beneficial owner. When you transfer the property to your relative there will be no change in the beneficial ownership of the asset. Therefore, a CGT event will not occur. | Detailed Reasoning - Main residence exemption: Generally, you ignore a capital gain or capital loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence. To get the full exemption from CGT: • the dwelling must have been your home for the whole period you owned it • you must not have used the dwelling to produce assessable income, and • any land on which the dwelling is situated must be two hectares or less. | Detailed Reasoning - Partial exemption: You may be eligible for a partial main residence exemption if: • the dwelling was your main residence for only part of the period you owned it • your partner or dependents have separate homes • you have used part of the property (either the dwelling or the land) to produce assessable income, or • the land is more than 2 hectares. In this case, you purchased a property with your spouse. You have always lived in this property, you have not used it to produce assessable income and the land it is situated on is less than two hectares. Therefore, you will be entitled to apply the main residence exemption when you dispose of this property. As discussed above, you were not the beneficial owner of your relative's property. Your legal ownership of this property does not affect your eligibility for the main residence exemption.