Private ruling: Capital gains tax - trust - disposal
Date of advice: 11 September 2018
Published: October 2018
Ruling period: Year ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Did you own an interest in the property for capital gains tax (CGT) purposes? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 102-30 | Income Tax Assessment Act 1997 Section 103-10 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 106-50. | Income Tax Assessment Act 1997 Section 108-5.

Reasons for decision: Summary: Capital gains tax provisions Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. The property is a CGT asset. Under section 104-10 of the ITAA 1997 CGT event A1 happens if you dispose of a CGT asset. You dispose of an asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. In this case, you and ‘A’ and ‘B’ were the legal owners of the property. The sale of the property is a CGT event. We therefore need to examine if there are any exceptions or CGT exemptions in your circumstances. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners discusses the income/loss from a property co-owned by husband and wife. The ruling states that the income/loss must be shared according to the legal interest of the owners except in those very limited circumstances where there is sufficient evidence to establish that the equitable or beneficial interest is different from the legal title. Although the property is not a rental property, the principles in TR 93/32 remain relevant. You stated that ‘A’ and ‘B’ had full responsibility for the property since acquisition. However there is no documentary evidence to show that you held your interest in the property on trust for ‘A’ and ‘B’. The title to the property did not change until the sale and this was more a significant number of years from acquisition. Notwithstanding that you initially required your name to be included on the title for asset protection purposes in the event that the relationship between A and B ceased. You refer to section 106-50 of the ITAA 1997 which applies to absolutely entitled beneficiaries. You advised that ‘A’ and ‘B’ had absolute entitlement to the property and you had no interest in the property. However there is no documentary evidence to support this. In this case, it cannot be said that ‘A’ and ‘B’ were always absolutely entitled to 100 percent of the property as you have been legally entitled to 50 per cent of the property since acquisition. We acknowledge your intention and that the solicitor may not have fully explained the implications surrounding your situation. However, the Commissioner can only consider what actually occurred rather than what was intended to occur. The Commissioner has no discretion to ignore the certificate of title. The legislation applies to what in fact happened rather than what may have been in mind at some earlier or later point in time. As such the change of sale of property will be a CGT event under the CGT provisions.

Relevant facts: Your child, (‘A’) approached you a number of years ago in relation to acquiring a property for them and their partner, (‘B’) to reside. | The property is located in Australia. | You offered to loan ‘A’ half the purchase price, however you were not certain that ‘A’s relationship with ‘B’ would last so you required that your name be included on the title to the property for asset protection purposes. | You obtained legal advice around the time of the purchase in relation to the purchase of the property and you advise that you do not have a trust deed in relation to the ownership of the property. | You approached your financial institution to obtain finance to fund the acquisition of the property. The mortgage was entered into in joint names. | The certificate of title provides that you are recorded as owning a 50 percent interest in the property. ‘A’ and their now spouse ‘B’ are recorded as owning a 25 percent interest each. | ‘A’ and ‘B’ have treated the property as their main residence. | The property was listed for sale in 2017. | Settlement occurred in 2018. | ‘A’ and ‘B’ have been responsible for all costs in relation to the property and have received the capital proceeds from the sale. | A capital gain has occurred as a result of the sale.