Private ruling: Capital gains tax
Date of advice: 7 December 2017
Published: April 2018
Ruling period: Year ending 30 June 2018. | Year ending 30 June 2019. | Year ending 30 June 2020.
Date scheme commenced: 1982.

Ruling: Q1: Will any capital gain or loss on the sale of the property be disregarded? | A1: Yes.

Relevant facts and circumstances: You acquired a property containing a residential dwelling prior to 20 September 1985 (the property). At the time you acquired the property, X of your relatives were registered on the title, along with you as tenants in common in equal shares. Your relatives were included on the title to satisfy bank requirements. The bank would not lend you the funds to settle the purchase of the property, and had to include your relatives on the loan documents to secure the loan. Following the acquisition of the property, you lived in the property alone and in years later, the property was rented out and used to produce income. When the property was rented out, you were the sole recipient of the rental income which you returned as assessable income. All payments and outgoings in relation to the property including mortgage repayments, rates and renovation costs were incurred and paid by you. Your relatives did not contribute any funds toward the property. After 19 September 1985, you were able to repay the loan and no longer required your relatives to act as loan guarantors. You arranged to have their names removed from the title. Your relatives agreed to sign all documents required to remove their names from the title and did not ask for, or receive any consideration in having their names removed from the title and you became the sole registered owner of the property. At the time, you and your relatives prepared statutory declarations in relation to the ownership of the property, confirming your relatives held no interest in the property and you had provided all funds, and paid all expenses.

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 | Income Tax Assessment Act 1997 Section 109-5

Reasons for decision: Summary: Capital gains tax (CGT) event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event. Ownership In most cases, legal ownership is determinative of who declares income, who can claim deductions and who owns a CGT asset for income tax purposes. 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. Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property in trust Where an individual purchases and pays for a property but legal title is transferred to another person at their direction, if that person is a stranger, the presumption of resulting trust arises and the property is held in trust for them. Application to your situation The Commissioner is satisfied that you were always absolutely entitled to the entire property, since it was acquired prior to 20 September 1985. Accordingly, no CGT event occurred after 20 September 1985 when your relatives transferred their legal interests in the property to you. Therefore, the property retains its pre-CGT status and any capital gain or loss on the disposal of the property will be disregarded.