Private ruling: Capital Gains Tax - Property - Beneficial ownership
Published: September 2017
Ruling period: Year ending 30 June 2018.
Date scheme commenced: 1 July 2017.

Ruling: Q1: Will a capital gains tax event occur when you transfer your legal interest in the property to your family member? | A1: No.

Relevant facts and circumstances: You purchased a property on behalf of a family member as he/she was unable to obtain a lending at that time. Your family member paid the deposit for the property and has made all mortgage repayments. Your family member has lived in the property as his/her main residence since acquisition. Your family member is now in a position to obtain lending and you intend to transfer your legal interest in the property, and the mortgage to him/her.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1) and | 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 the property in your own name and it was lived in by your family member. You did not receive a financial gain from the property. Your family member paid the deposit for the property and all mortgage repayments. 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 family member there will be no change in the beneficial ownership of the asset. Therefore, a CGT event will not occur.