Private ruling: Capital gains tax
Date of advice: 26 March 2021
Published: May 2021
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you liable for capital gains tax (CGT) on disposal of an ownership interest in your child's home? | A1: No

Relevant facts and circumstances: Your child and spouse entered into a contract to acquire a house and land package. However, prior to settlement, the bank refused to supply mortgage finance because of certain reasons. The bank would only provide mortgage finance if you and your spouse were added to the title. After construction of the house, your child and spouse occupied the property as their principle place of residence. They still reside in this property, which has never been rented. It was never your intention to profit or benefit from the property or to have any beneficial ownership of the property. You and your spouse have never contributed any funds towards the purchase, mortgage or any expenses that relate to this property. Some years later, your child and spouse were able to obtain mortgage finance of their own for the property. Using this finance, the existing mortgage was repaid and your name, and your spouse's name, were removed from the property title. Neither you, nor your spouse, received any funds from the transfer of the property title.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10

Reasons for decision: Summary: On the purchase of real property, a resulting trust may be presumed in instances where the legal title that vests in one or more of the parties does not reflect the respective contributions of the parties to the purchase price. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) explains that if the equitable interest does not follow the legal title, there is some basis for the profit/loss to be distributed on the equitable and not the legal basis. However, it is considered that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. Paragraphs 39 and 40 of TR 93/32 provide a summary of the legal principles involved: 39. It was explained in Calverley v Green 56 ALR 483, Dean J said(at p 500): 'It is simply that there are certain relationships in which equity infers that any benefit which was provided for one party at the cost of the other has been so provided by way of "advancement" with the result that the prima facie position remains that the equitable interest is presumed to follow the legal estate and to be at home with the legal title or, in the words of Dixon CJ, McTiernan, Fullagar and Windeyer JJ in Martin v Martin (1959) 110 CLR 297 at 303, that there is an "absence of any reason for assuming that a trust arose".' 40. Cases where the title includes the name of a person who is a nominee or trustee, must be decided on an individual basis on the evidence available to establish that fact. Authority can be found in Napier v Public Trustee (Western Australia) 32 ALR 153 where the court accepted there was sufficient evidence to establish that the equitable interest was different from the legal title. Aickin J said (at p 158): 'The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis ) there is a presumption of advancement so that the beneficial as well as the legal interest will pass. Each of the presumptions may be rebutted by evidence.' In your case, it is evident that you did not contribute any funds to the purchase of the property, did not pay for any expenses relating to the property, did not live in the property and did not gain any financial benefit from the property. Therefore, the Commissioner accepts that in your circumstances, the legal and equitable interests are not the same. Accordingly, while a CGT event A1 occurred when the property title was changed to remove you and your spouse from the title, the resulting capital gain or loss can be disregarded.