Private ruling: Capital gains tax - Real property
Published: February 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Did a capital gains tax (CGT) event occur when title to a property was transferred? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 106-50 | Income Tax Assessment Act 1997 Section 108-5 | Income Tax Assessment Act 1997 Subsection 104-10(1) | Income Tax Assessment Act 1997 Subsection 104-10(2)

Reasons for decision: Summary: A capital gain may arise when a capital gains tax (CGT) event happens to a CGT asset. Section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a CGT asset is any kind of property, or a legal or equitable right that is not property. Under section 104-10 of the ITAA 1997 the disposal of a CGT property asset causes a CGT event A1 to occur. You dispose of an asset when a change of ownership occurs from you to another entity. In the absence of evidence to the contrary, property is considered to be owned absolutely by the person(s) registered on the title, in certain situations it can be held that you hold the property on trust for your son. There are three kinds of trusts: express, resulting, or constructive. | Detailed Reasoning - Express Trusts: An express trust is one intentionally created by the owner of property in order to confer a benefit upon another. It is created by express declaration, which can be effected by some agreement or common intention held by the parties to the trust. For an express trust to be created it is necessary that there is certainty of the intention to create a trust, certainty of the subject matter of the trust and certainty as to the object of the trust. In your case, the reason you purchased the property and held it in your name was to provide a house for your child. You and your child did not have an intention to create a trust. While trusts can be created orally, all State Property Law Acts contain provisions derived from the Statute of Frauds, that preclude the creation or transfer of interests in land except if evidenced in writing. In this case, you do not have any documentary evidence that you held the property as trustee for your son. Such documents would constitute a declaration of trust and make clear the terms of the trust. The absence of such a document means that an express trust cannot exist. | Detailed Reasoning - Constructive Trusts: A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned, whenever equity considers it unconscionable for the party holding title to the property in question to deny the interest claimed by another. The existence of a constructive trust is, however, dependent upon the order of the court, even though that order may operate retrospectively by dating the origin of the trust from some earlier wrongful act. The facts of your case do not indicate the existence of a court order. It is therefore concluded that no constructive trust currently exists. | Detailed Reasoning - Resulting or Implied Trusts: A resulting trust, sometimes called an implied trust, is a trust that arises by operation of law in favour of the creator of some prior trust or other interest in certain circumstances. Those circumstances fall into two broad classifications: · cases in which a settlor fails to completely dispose of the beneficial interest, or where a surplus arises after the original purpose of a trust has been satisfied or has ceased to exist; and · cases in which someone purchases property in the name of another. A trust is presumed in favour of the party providing the purchase money. Where an individual purchases and pays for a property but legal title to it 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. But where the property is transferred to the taxpayer's immediate family, the presumption of resulting trust is replaced by the presumption of advancement which deems the purchase to be prima facie intended to advance the interests of the family members (i.e. an absolute gift). The consequence of the presumption of advancement being upheld is that the parties will hold their equitable interests in the property in the same proportions as their legal interests. While it is possible to rebut the presumption of advancement, any rebuttal would essentially create an express trust. From the information provided, we have concluded (see reasons above) that no express trust has been established. In your case, you purchased the property in you and your spouses name but now want to transfer it to an immediate family member, your child. Consequently, neither of the situations that might create a resulting trust exists. Therefore, as there is no trust arrangement, it is not necessary to consider absolute entitlement and section 106-50 of the ITAA 1997 will not apply to treat any act done by you as if it were done by your child. | Detailed Reasoning - The consequences for you: A CGT event will occur when you transfer your ownership interest in the property to your child. You will not be exempt from CGT because this property was purchased after 20 September 1985 and it has never been your main residence. In your case, when title to the property was transferred to your child, being your share as recorded on the title, this transfer has triggered CGT event AI and as such you will be liable for any CGT liabilities that follow. You will calculate your capital gain or capital loss due to the transfer on the basis that you will receive the market value of your interest in the property as your capital proceeds for its transfer to your child. You will be subject to tax on any capital gain made from the transfer of the property to your child Whilst we acknowledge and appreciate your particular circumstances, the Commissioner has no discretion to vary your legal interest in the property due to your particular circumstances.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You and your spouse purchased land and constructed a property after 20 September 1985. | You and your spouse provided all the money for the purchase of the land and the cost of construction of the house. | You and your spouse undertook this so that your child would be able to reside in the property. | The title to the property was in you and your spouses name as your child was experiencing marital difficulties and you did not want your child's spouse to be able to make a claim on the property as part of any future marital property settlement. | Your child separated from their spouse and an informal property settlement was reached between them. | You transferred title to the property to your child. | You have made a capital gain as a result of the transfer.