Private ruling: CGT - legal vs beneficial ownership
Date of advice: 29 July 2022
Published: November 2022
Ruling period: Year ended 30 June 20YY
Date scheme commenced: DD/MM/YYY

Ruling: Q1: Did a capital gains tax (CGT) event happen to you on the sale of the property in relation to your beneficial interest in the property rather than your legal interest? | A1: Yes. A CGT event occurs when there is a disposal of an ownership interest in a CGT asset. However, a CGT event does not occur if there is only a change of legal ownership for you and not a change of beneficial ownership. Based on the facts, the Commissioner accepts that in your circumstances, although your name was included on the title of the property when it was purchased by Person A, it was never intended for you to have, and you never had, any beneficial ownership of the property prior to you inheriting an interest in the property after their passing. It can be reasonably concluded that when the property was sold, the only beneficial ownership interest you disposed of was the interest you inherited. | Q2: Will the Commissioner allow an extension of time for you to dispose of your ownership interest in the property and disregard the capital gain or loss you made on the disposal? | A2: Yes. Having considered your circumstances and the relevant factors the Commissioner will allow an extension of time. Further information about the Commissioner's discretion can be found by searching ato.gov.au for 'QC 66057'.

Relevant facts and circumstances: Person A entered into a contract to purchase the property after 1985. Person A was concerned that they might lose half of their interest in the property to a partner if they were to enter into a relationship. Therefore, Person A added you as the second purchaser. You legally held an ownership interest in the property and Person A legally held the remaining share in the property. The property was wholly funded by Person A. You did not make any contributions towards the acquisition of the property. It was understood and mutually agreed between Person A and you that you held your interest in the property for the absolute benefit of Person A, such that Person A has beneficial ownership over all of the property. This trust was not formally declared in writing. Person A passed away on DD/MM/YYYY. Person A resided in the property as their principal place of residence until they passed away. The property was situated on less than 2 hectares of land. The property was not used to derive any assessable income. Probate was granted on DD/MM/YYYY. The executor was appointed, and they were not aware of the arrangement between you and Person A regarding the ownership of the property. The executor administered the estate in accordance with the will, and distributed Person A's interest in the property between the beneficiaries, in equal shares as tenants­in-common. Person A's interest in the property was transferred to the beneficiaries. Following the passing of Person A, you considered that the share in the property registered to you was, from their passing and in consequence of their will, held by you for you and each of the other beneficiaries as residuary beneficiaries of the estate. A beneficiary disputed your legal entitlement on the title and lodged a caveat on the property. You signed an Irrevocable Authority and Direction document in which you agreed to direct the proceeds derived from the sale of the property firstly in payment of all outstanding selling fees, secondly as a reimbursement of a minor amount, thirdly for any taxation consequences and finally the balance to be distributed equally between the beneficiaries. You and the other beneficiaries entered into a Deed of Release (the Deed). In the Deed it agreed that the whole of the property was at all times the principal place of residence of Person A and beneficially owned by them, including the part registered to you. Person A's will provided that their residue passes equally to the beneficiaries. The property interests of Person A fell into residue and the interests of the beneficiaries passed to each of them as a beneficiary in Person A's estate. The caveat was withdrawn. The property was listed on the market for sale. You and the other beneficiaries were the vendors on the sale of the property. You considered that as vendor of your legal interest, you were signing as to your legal and beneficial share and as to the amount held by you for each of the other beneficiaries. A contract of sale was entered into with settlement occurring in the 20YY income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 106-50 | Income Tax Assessment Act 1997 section 118-195