Private ruling: CGT - legal and beneficial ownership
Date of advice: 29 March 2023
Published: 22 May 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will capital gains tax (CGT) event A1 occur to Persons B when they transfer their interests in the Property to Persons A and C? | A1: No. CGT event A1 occurs when there is a disposal of an ownership interest in a CGT asset. However, CGT event A1 does not occur if there is only a change of legal ownership and not a change of beneficial ownership. The Commissioner considers that the interests of Persons B in the property were merely legal and not beneficial. Accordingly, CGT event A1 will not occur to Persons B from the transfer of their interests in the property because there will be no change in beneficial ownership. | Q2: Will CGT event A1 occur to Persons A and C from the transfer of the interests in the Property of Persons B? | A2: No, CGT event A1 will not occur to Persons A and C. Further, Persons A and C will not acquire an additional interest in the Property when Persons B transfer their legal interests in the Property. | Q3: Did Persons A and C beneficially own the Property from their acquisition date in the 20XX calendar and financial years? | A3: Yes, the Commissioner considers that Persons A and C have each held beneficial ownership of 50% of the property since the acquisition date in the 20XX calendar and financial years.

Relevant facts and circumstances: Person A intended to acquire property (the Property) in early 20XX. The Property was due to go to auction in a short period of time and Person A owned a home with an attached mortgage. Person A would need to sell and discharge the respective mortgage to be able to afford a new mortgage to acquire the Property. To save Person A having to pay lenders mortgage insurance and to save on the time it would take for a new loan to be approved prior to them selling their home, Person A's parents (Persons B) offered to allow their principal place of residence as additional security. Persons B's principal place of residence already had an ANZ Mortgage attached that restricted Person A and Persons B to only be able to use ANZ for the new loan for the proposed purchase of the Property. During this period in early 20XX, ANZ did not accept additional security for loans except from actual borrowers. Persons B were required to go on title and listed as borrowers on the new ANZ loan to secure the Property purchase in early 20XX. Person A paid for the deposit solely. The Property was purchased and is currently owned by Persons B, Person A and their spouse Person C as tenants in common in equal shares. The intention of this family arrangement was that when Person A was able to take over the loan on their own account, without the additional security of Persons B's principal place of residence, then Person A would do so. From settlement to present date, Persons A and C treated the Property as their principal place of residence. During this period: • Persons A and C did not treat any other property as main residence, nor have they owned any other property, as the aforementioned home was sold in 20XX; • Neither Persons A and C, nor Persons B, derived any assessable income from the Property, it has never been used to produce income during the ownership period; and • Persons B during this period resided in a separate residence and treated this as their main residence. During the ownership period from 20XX to present, Persons B did not assist with any of the payments relating to the Property. As part of the agreed family arrangement, Person A made all loan repayments of principal and interest; paid all council rates, water rates and utility costs; and was personally responsible for the upkeep and funding for any capital home improvements. Person A transferred the surplus funds from their home sale in 20XX to the ANZ Offset Account (which is offsetting the Property's ANZ Loan). During the ownership period, Persons A and C had children and the financial impact of this prolonged the original timeframe of when they would transfer the interests of Persons B in the Property to themselves, and discharge Persons B from the ANZ mortgage. Person A is now in a financial position to enable them to discharge Persons B from the ANZ Loan and remove them from the title of the Property. The outcome will be that Persons A and C will own 100% of the Property and be solely responsible for the ANZ loan facility. The Property has been the main residence of Persons A and C and their dependents for the entirety of the ownership period. The Property is on land of 2 hectares or less.

Relevant legislative provisions: Income Tax Assessment Act section 102-20 | Income Tax Assessment Act section 104-10 | Income Tax Assessment Act section 109-5