Private ruling: Capital gains tax
Date of advice: 21 December 2021
Published: March 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 20 June 20XX

Ruling: Q2: Does Person A have a Capital Gains Tax Event on the sale of the property in respect of the sale of the property on 20 June 20XX? | A1: No. | Q3: Does Person B have a Capital Gains Tax Event on the sale of the property on 20 June 20XX? | A2: Yes. | Q4: Is Person B entitled to the Main Residence Exemption under Division 118 of the Income Tax Assessment Act 1997 (1997 Act)? | A3: Yes. | Q5: Does Person C have a Capital Gains Tax Event on the sale of the property on 20 June 20XX? | A4: No.

Relevant facts and circumstances: Your tax agent advised that: The property was acquired in 19XX in the name of Person A. Person A is the registered owner on the title of the property. He has never lived in the property. At no time since the property was acquired did Person A intend to hold the property beneficially or for his own benefit. The property was considered by Person A as being beneficially owned and held by the sibling Person B, and to be used as the primary residence with Person C. Person B and Person C lived together in a bona fide domestic relationship. Person B and Person C are considered spouses for the purposes of the ITAA 1997. Person A agreed to have the property placed in his name to enable Person B and Person C to obtain the relevant finance required to acquire the property. Person A loaned a further $XX,XXX to the sibling to assist to finance the mortgage placed on the property. This is evidenced in a signed agreement in 20XX. At all times, the mortgage over the property was paid for by Person B and Person C. Person A did not contribute any amount towards the purchase of the property, the repayments of the home loan and any of the outgoings of the property. Signed Document - 'The Agreement' On XX X 20XX, Person A and Person B signed a document titled "Agreement" and executed that document in a manner consistent with a Deed under Seal, using the words "signed, sealed and delivered" (the Agreement). The document has never been in front of a Judge for consideration, but has been legally established between the two parties Person A and Person B. The 'Agreement' states that Person A held the property in trust for Person B. Person A advanced a further $XX,XXX to fund the purchase of the property on the basis that the amount be repaid to Person A as per the Agreement. Details of the signed agreement include: • Person B and the family to occupy the property as their main residence and subject to compliance with the terms and conditions under the Agreement, shall be entitled "to continue such occupancy". (Paragraph D) • Clause 1 states: "Person A acknowledges that the beneficial interest in the property vests in Person B and Person A will only hold the property upon trust for Person B." • Clause 2 - Person B acknowledges that he is obliged to pay all payments under the mortgage and all rates, taxes and insurances in respect of the property and otherwise shall keep the property in good order and repair. • Clause 3 - Person A and Person B agreed to increase the mortgage to $XXX,XXX and that $XX,XXX of the net proceeds of that increase be paid to Person A in partial reduction of the $XX,XXX advanced by Person A to Person B. The balance of $XX,XXX would bear interest calculated at the market rate determined by the ANZ's current home loan rate. Further, the $XX,XXX be repaid in full to Person A within X years of the date of the Agreement. • Clause 6 - Both parties agree that subject to the compliance with all conditions contained in the Agreement, the property shall either be transferred into the name of Person B or sold at the expiration of X years. • Clause 7 - In the event of Person B making default in payment of any monies due under the Agreement, Person A shall be entitled on giving 21 days written notice to Person B to sell the property and to disburse the net proceeds of sale in payment of all monies outstanding. Person B and Person B paid all amounts due under the mortgage and continued to pay all outgoings in respect of the property until the date the property was sold, being XX X 20XX. Person B and Person B Separate On XX X 20XX, Person B and Person C at the time of separation, entered into the Financial Agreement, splitting the marital assets between them. The Financial Agreement is described as a Financial Agreement under Section 90UD of the Family Law Act 1975 (the Financial Agreement). The financial agreement states: "It is agreed by Person B and Person C that the Property was placed in Person A's name to assist with the bank loan." Sale of Property On XX X 20XX, a contract for sale of the property was signed for $XXX,XXX. The Contract was settled on XX X 20XX and the funds were disbursed in a manner consistent with the Financial Agreement.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20. | Income Tax Assessment Act 1997 section 104-10(2) | Income Tax Assessment Act 1997 section 118-110

Reasons for decision: Detailed Reasoning - Question 1 and Question 2: Under section 104-10 of the ITAA 1997, a CGT event A1 happens if you dispose of an ownership interest in a CGT asset. However, subsection 104-10(2) of the ITAA 1997 states that a change in the legal ownership of an asset without a change in the beneficial ownership will not constitute a disposal for CGT purposes. | 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. | Detailed Reasoning - Legal: 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, it is possible for legal ownership to differ from beneficial ownership. A beneficial owner is a person or entity who is beneficially entitled to the income and proceeds from the asset. An individual may hold a legal ownership interest in a dwelling for another individual in trust. It is accordingly, the beneficial owner of the CGT asset who is liable to declare the capital gain or loss from the event. As noted by Jagot J. in ELLISON & ANOR v SANDINI PTY LTD & ORS and further in FC of T v SANDINI PTY LTD & ORS 2018 ATC 20-651, for these purposes the beneficial owner for CGT event A1 purposes is identified under rules of equity: "... To be a beneficial owner the person must have rights which a court of equity would enforce involving full dominion over the asset; ..." ' Rights which a court of equity would enforce ' include those governed by equity principles for situations where beneficial ownership may be separated from legal ownership. In situations where legal title may differ from beneficial ownership for property, intent at start of ownership is a key element needing to be established for equity principle application purposes. As noted by Gibbs CJ. in Calverley v Green [1984] HCA 81: "...3 Where a person purchases property in the name of another, or in the name of himself and another jointly, the question whether the other person, who provided none of the purchase money, acquires a beneficial interest in the property depends on the intention of the purchaser...9. .... Where one person alone has provided the purchase money it is his or her intention alone that has to be ascertained.. ..12 . The extent of the beneficial interests of the respective parties must be determined at the time when the property was purchased..." In these cases, it will be the beneficial owner of a CGT asset that is liable for any capital gains tax attributable, upon sale of the assets. Your agent stated the following: • at the time of purchase of the property, Person A agreed to be a registered legal owner of the property, but without any expectation of having any elements of beneficial ownership of the property. • Person A had no intention of living in the property at the time of purchase of the property. • Person A did not intend to and did not incur any expenses of ownership of the property, including mortgage payments. Person A did not live in the property or use it as his main residence. Person A did not financially contribute to the purchase or upkeep of the property, nor was he a recipient of any rental income from the property. • as evidenced with the Agreement, as an indicator of the intent at the time of purchase, there had been no intention for Person A to benefit from any future sale of the property. At the time of purchase of the property, Person A agreed to be a registered legal owner of the property, but without any expectation of having any elements of beneficial ownership of the property. Person A had no intention of living in the property at the time of purchase of the property. As a result, the facts indicate that Person A, although being a legal owner of the property, it was never intended for him to have any beneficial ownership of the property. Whilst Person A's name may have been on the title, Person A will not have a CGT event A1 or any other CGT event occurring when he transferred his interest in the property. Considering the circumstances of the case, it may be accepted that the legal and equitable interests in the dwelling are not the same. Person A can be considered to have been the beneficial owner of the dwelling for the purposes of applying CGT event A1. Person B will be considered for any application of the CGT as beneficial owner on disposal of the property . | Detailed Reasoning - Main residence exemption: Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To receive a capital gains tax (CGT) main residence exemption section 118-110 of the ITAA 1997 states: 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. To qualify for full exemption, the dwelling must have been the taxpayer's residence for the whole period the taxpayer owned it (the ownership period) and must not have been used to produce assessable income. In this instance, Person B and his partner lived in the property for the entire period under consideration. Consequently, Person B, would be subject to CGT event A1, but for the operation of the main residence exemption he will not be liable for any CGT as per Section 118-110 of the ITAA 1997. | Detailed Reasoning - Question 4: Section 118-110 of the ITAA 1997 provides that you can disregard a capital gain or capital loss made from a CGT event that happens to a dwelling that is your main residence. To receive a capital gains tax (CGT) main residence exemption section 118-110 of the ITAA 1997 states: 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. As Person A and Person B signed an Agreement that was executed in a manner consistent with a Deed under Seal, using the words "signed, sealed and delivered", the property became the main residence of Person B. Furthermore, while Person B and Person C lived together in a bona fide domestic relationship and were considered spouses for the purposes of ITAA 1997, the beneficial ownership of the property was solely in the name of Person B. Person C had a right to occupy the premises and was not a beneficial ownership.