Private ruling: Capital gains tax
Date of advice: 6 March 2020
Published: April 2020
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do you have an ownership interest in the property for capital gains tax purposes? | A1: Yes.

Relevant facts and circumstances: Your parents wanted to buy a property (the Property). Parent A cashed out their superannuation to put towards the purchase of the Property. The purchase price was paid. Your parents were unable to obtain a loan to finance the remainder of the purchase price in their names only as they were low income earners. The bank would only lend the money if your name was listed on the loan contract and your income was taken into consideration when the bank was assessing affordability for the loan. Your family purchased the Property sometime after 20 September 1985 with the title being registered in one third shares as tenants in common between your parents and you. You did not contribute money towards the deposit, nor did you make any repayments towards the home loan. You did not provide a personal guarantee. Your parents and your two younger siblings moved into the Property. You did not pay any of the outgoings or maintenance of the Property. You did not move into the Property. You were renting elsewhere at the time, and a few years later purchased another property down the road from your parents. You moved into your property and lived there as your main residence. Parent B was diagnosed with an illness and passed away. Parent B's share of the Property passed to Parent A. Parent A passed away some ten years ago. Parent A left their share of the Property (being their original one third interest and the inherited one third interest) to you and your two siblings in equal shares. As executor of Parent A's will, you requested a discharge of mortgage to the Property. Once you received the title, you realised that you were listed on the certificate of title as an owner of the Property. You removed Parent A's name from the certificate of title and added your siblings' names. Your siblings are listed as joint proprietors, and you are listed as tenants in common with them. Your siblings have remained residing in the Property as their main residence. You were diagnosed with an illness which made resolving the situation difficult. Your sibling has been diagnosed with a disorder. This diagnosis was not made until they were an adult. They have struggled to cope with any mention of altering the title deed, which delayed resolving the issue. Your siblings have no intentions of selling the Property. Assumptions For the purpose of this ruling it is assumed that you will transfer your share of the Property to your siblings during the period of this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 108-5 | Income Tax Assessment Act 1997 section 109-5 | Income Tax Assessment Act 1997 section 116-30 | Income Tax Assessment Act 1997 section 118-110

Reasons for decision: Summary: You have an ownership interest in the Property for capital gains tax (CGT) purposes. | Detailed Reasoning - Detailed reasoning: A capital gain or a capital loss may occur when a CGT event happens to a CGT asset. The most common CGT event is CGT event A1 which occurs when you dispose of your ownership interest in a CGT asset to another entity. The most important element in the application of the CGT provisions when dealing with the disposal of a CGT asset is determining who the owner of the CGT asset was for CGT purposes at the time of disposal. The CGT provisions will apply to you when you transfer your share of a CGT asset (the Property) to your siblings (CGT event A1) if you are considered to be the owner of it for capital gains purposes. Taxation Ruling TR 93/32 Income Tax: rental property - division of net income or loss between co-owners (TR 93/32) explains the basis upon which we will accept, for income tax purposes, the division of the net income or the loss from a rental property between the co-owners of that property. It also addresses the concept of ownership of a property. Paragraph 8 states that generally, a legal interest in land is achieved by the owner being the registered proprietor of the legal title to the land. A person's legal interest in a property is determined by the legal title to that property under the property law legislation in the State or Territory in which the property is situated. The legal owner of the property is recorded on the title deed for the property issued under that legislation. In some cases it is possible for legal ownership to differ from beneficial ownership. A beneficial owner is defined as a person or entity who is beneficially entitled to the income and proceeds from the asset. Ordinarily; however, in such cases a trust arrangement exists with the legal owner holding the property in trust for the beneficial owner. An individual may hold a legal ownership interest in a dwelling for another individual in trust. In the absence of any evidence to the contrary property is considered to be owned by the person(s) registered on the title. | Detailed Reasoning - Trust arrangements: Where beneficial ownership and legal ownership of a property are not the same, there must be evidence to show that the legal owner holds the property in trust for the beneficial owner. Where an individual holds the asset as trustee and another individual is absolutely entitled (disregarding any legal disability) to an asset as against the trustee, any capital gains tax liability is assumed by the beneficiary. The trust itself is treated as the owner of a CGT asset in most other trust situations. There are generally considered to be three kinds of trusts: express, constructive or resulting. | Detailed Reasoning - Express Trust: An express trust is one intentionally created by the owner of property 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 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. 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. However, the absence of writing does not make the declaration of trust over land void, but merely unenforceable. If the trust is evidenced by writing, the writing need not be contemporaneous with the transaction that created the trust but may be brought into existence after the transaction. In your case, there is no trust deed in existence. Therefore, there is nothing to support a finding that an express trust exists over your interest in the Property. | Detailed Reasoning - Constructive Trust: 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. For a constructive trust to exist there needs to be a court order. In your case, no constructive trust exists. | Detailed Reasoning - Resulting trust: 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: 1. 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 2. 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 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. However 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 (that is, 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 unless they can rebut the presumption of advancement. In your case, by entering into the contract for the home loan with the bank, you have borrowed some of the money used to purchase the Property. This is despite the fact that you did not contribute money towards the deposit or make loan repayments. A resulting trust cannot exist over the part of the Property that you paid for. Further, the presumption of advancement will apply to any part of the Property that was funded by your parents but placed in your name. This conclusion is consistent with the statement at paragraph 41 of TR 93/32 which states: We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title. Therefore, as there was no trust in existence and your name is listed on the certificate of title for the Property, for CGT purposes you have an ownership interest in the Property. Upon disposal of the Property, CGT will need to be applied to any capital gain made. | Detailed Reasoning - Market Value Substitution: You will be required to calculate the capital gain that will result from the transfer, on the basis that you will receive the market value of the Property as your capital proceeds for its transfer to your siblings. There are special rules that apply if the sale of CGT assets is between family members or a related party. Such a transaction is considered to be a non-arm's length transaction. In a case where there is a non-arm's length transaction a market value substitution rule will take effect. Section 116-30 of the Income Tax Assessment Act 1997 provides that if no capital proceeds are received from a CGT event, taxpayers are taken to have received the market value of the CGT asset that is the subject of the CGT event. In your case you will give a CGT asset to your siblings without receiving any proceeds in return. Therefore you will be taken to have received the market value for your share of the Property.