Private ruling: CGT - legal and beneficial ownership
Date of advice: 17 April 2023
Published: 5 June 2023
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are you considered the sole beneficial owner of the property for capital gains tax (CGT) purposes? | A1: Yes. | Q2: Are you entitled to apply the CGT main residence exemption in accordance with section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes.

Relevant facts and circumstances: In MM YYYY, you were interested in purchasing a property. You approached Bank Ato obtain pre-approval for a mortgage to finance the purchase of the property. Due to your personal circumstances, Bank A requested that your parent be included as a registered proprietor on the title and as a joint borrower under the mortgage. To secure finance for the purchase of the property, you and your parent agreed to this arrangement. You both also agreed that although your parent's name would be on the title, you would pay for the purchase of the property and your parent would have no interest in the property. There are no documents between you and your parent to record this agreement. In MM YYYY, the property was purchased by you and your parent in equal proportions for $X Your parent gifted you $X to assist with the deposit. You paid the remainder of the purchase price and the mortgage repayments. You refinanced the loan with Bank B and proceeded to make all further mortgage repayments to Bank B. You moved into the property immediately after it was purchased and continued to live in the property until MM YYYY when it was sold to a third party. The property was your main residence and was not used to produce assessable income. Since the property was purchased, you have paid all the expenses relating to the property including renovation costs, repairs and maintenance, rates, and utilities. Your parent has never lived at the property. Your parent did not contribute to the mortgage repayments, rates, utilities, repairs and maintenance, or other expenses associated with the property. Your parent did not receive any income or rent from the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax assessment Act 1997 section 106-50 | Income Tax Assessment Act 1997 section 118-110 | Income Tax Assessment Act 1997 section 118-125 | Income Tax Assessment Act 1997 section 118-135

Reasons for decision: Detailed Reasoning - Question 1: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common CGT event, CGT event A1, occurs with the disposal of a CGT asset. A CGT event A1 may arise when a property is sold. When considering the sale of property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the property. A person's legal interest in a property is determined by the legal title to that property under the land law legislation in the state or territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation. However, it is possible for legal ownership to differ from the beneficial ownership. | Detailed Reasoning - Application to your circumstances: In your case, based on the facts, the Commissioner accepts that in your circumstances, although you and your parent were the legal owners of the property, it was never intended that your parent would have any beneficial ownership. You were the sole beneficial owner of the property. It can be reasonably concluded that at the time the legal ownership of the property was changed, that is, when the property was sold, you disposed of your beneficial ownership interest. Consequently, a CGT event happened to you when the property was sold. | Detailed Reasoning - Main residence exemption: Under section 118-110 of the ITAA 1997, a capital gain or capital loss you make from a CGT event that happens in relation to a CGT asset that is a dwelling or your ownership interest in it is disregarded if: a) you are an individual, and b) the dwelling was your main residence throughout your ownership period, and c) the interest did not pass to you as a beneficiary in, and you did not acquire it as a trustee of, the estate of a deceased person. You have an ownership interest (section 118-130 of the ITAA 1997) in a dwelling or land if: a) for land - you have a legal or equitable interest in it or a right to occupy it, or b) for a dwelling that is not a flat or home unit - you have a legal or equitable interest in the land on which it is erected, or a licence or right to occupy it, or c) for a flat or home unit - you have: i. a legal or equitable interest in a stratum unit in it; or ii. a licence or right to occupy it; or iii. a share in a company that owns a legal or equitable interest in the land on which the flat or home unit is erected and that gives you a right to occupy it Your ownership period (section 118-125 of the ITAA 1997) of a dwelling is the period on or after 20 September 1985 when you had an ownership interest in: a) dwelling; or b) land (acquired on or after 20 September 1985) on which the dwelling is later built. In most cases, the full exemption will apply where an individual or individuals own a dwelling and occupy it as a main residence. | Detailed Reasoning - Application to your circumstances: You lived in the property and treated the property as your main residence throughout the ownership period and you did not use the property to produce any assessable income. Therefore, you are entitled to apply the CGT main residence exemption in accordance with section 118-110 of the ITAA 1997.