Private ruling: Capital gains tax - trust - absolutely entitled beneficiary
Date of advice: 26 May 2017
Published: September 2017
Ruling period: Income year ending 30 June 2017 | Income year ending 30 June 2018
Date scheme commenced: 1 July 2016.

Ruling: Q1: Will a capital gains tax event occur to you when you as the Trustee of the Trust transfer an ownership interest in the Property to Person A? | A1: No. | Q2: Will a capital gains tax event occur to you when you as the Trustee of the Trust transfer an ownership interest in the Property to Person B? | A2: No.

Relevant facts and circumstances: Person A found a vacant lot of land they wanted to purchase and the building company that they wanted to use to construct a dwelling on the land. However, they had been unable to obtain a loan to purchase a property due to their financial circumstances at that time. After 20 September 1985, you purchased the vacant lot of land (the Land) for $XX,XXX. You, as Person A's parent, and your former spouse applied for a loan for the amount of $XXX,XXX. You and your former spouse were notified that your loan application for $XXX,XXX for the purchase of land and the construction of a dwelling had been approved. In the following month you and your former spouse entered into a building contract with Company XYZ for the construction of a dwelling (the dwelling) on the Land (to be known collectively as the Property) for $XXX,XXX. A verbal agreement was made at the time the Land was purchased that the Property belonged to Person A and that they would make all of the payments in respect of the Property. Person A moved into the dwelling located on the Land once the construction was completed and has continued to reside there until the present time. Person A has made all of the repayments for the bank loan and has paid all outgoings arising in relation to the Property since the Land was purchased. You have not occupied the dwelling, nor collected any rent from it, and have not included any amounts in your income tax returns in relation to the Property. You did not provide any money towards the purchasing of the Land or the construction of the dwelling. You have provided a statutory declaration to support that you had held the Property as Trustee of a Trust for Person A. You will transfer a specified percentage of the ownership interest in the Property to Person A and the remaining ownership interest in the Property to Person B, Person A's spouse, on the directive of Person A during the period covered by this ruling.

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

Reasons for decision: Summary: In this case, Person A was not able to obtain a bank loan to purchase the Property in their own name due to their financial situation. As a result, it was necessary for your name to be on the title of the Property so that you could secure finance from the bank for the purchase of the Land and the construction of the dwelling. However, Person A paid the bank loan repayments and other expenses arising in relation to the Property. At Person A's direction, you intend transferring a specified percentage of ownership interest in the Property to Person A, with the remaining ownership interest to be transferred to Person B. You have provided evidence in the form of a statutory declaration to support the existence of a trust. We have considered the information and documentation provided and we will accept that you held the Property on trust for Person A. As Person A is the only beneficiary of the trust, they are absolutely entitled to the Property as against you as the Trustee of the Trust. Therefore, when the ownership interests in the Property is transferred from you as the Trustee of the Trust to Persons A and B at Person A's directive, it will be viewed as if those actions had been done by Person A. That is, Person A as the owner of the Property is the one transferring the ownership interests in the Property. Therefore, no CGT events will occur to you when the ownership interests in the Property are transferred from you as the Trustee of the Trust to Persons A and B. Note: This private ruling does not consider the capital gains consequences for Person A.