Private ruling: Capital gains tax - Trust - Legal ownership - Main residence
Date of advice: 27 October 2015
Published: October 2015
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2XXX

Ruling: Q1: Do you have an ownership interest in Property A for capital gains tax purposes? | A1: No. | Q2: Do you have an ownership interest in Property B for capital gains tax purposes? | A2: Yes.

Relevant facts and circumstances: In 2YYY your sibling wished to purchase a property in which to reside as their principal place of residence (Property A). In 2ZZZ your sibling wished to purchase another property as an investment (Property B). Due to your sibling's concerns with their ex-partner, it was agreed that your name would be placed on the title of both properties for safe keeping. Your sibling paid the full amount of the purchase price of Property A. Your sibling paid the deposit for Property B and the balance amount was obtained through a mortgage loan in your name. It was agreed that your sibling would pay the loan repayments and all outgoings in relation to the Property B. Your sibling has rented out Property B the entire period since purchase. Your sibling receives all rental income in relation to Property B. You and your sibling submit that your role in the purchase of Property A and Property B was in the capacity as a bare trustee for your sibling. There are no documents signed by you that support the existence of an express trust. Your sibling has paid all of the loan repayments and expenses relating to Property B. Both properties have not yet been sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20. | Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 106-50. | Income Tax Assessment Act 1997 Section 118-110.

Reasons for decision: Summary: You do not have an ownership interest in Property A for capital gains tax (CGT) purposes. | Detailed Reasoning - Detailed reasoning: When considering the disposal of your interest in the property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal and/or beneficial owner of the property. Generally, the owner of the property is the person(s) registered on the title, but it is possible for legal ownership to differ from beneficial ownership. When a person purchases and pays for a property, but legal title is placed in another person's name, a resulting trust will arise in favour of the contributor of the purchase money. Where a property is purchased in the name of one person and another person makes a direct financial contribution to the purchase, the property is presumed to be held in shares proportionate to the contributions made by each of them. In your case, although the property was purchased in your name, your sibling contributed the entire amount of the purchase price the property. Therefore, you are not an owner for CGT purposes. | Summary: You have an ownership interest equal to your proportionate share of the purchase price of Property B for CGT purposes. | Detailed Reasoning - Detailed reasoning: As discussed above, it is important to distinguish between legal and beneficial interests when applying the CGT provisions. The extent of the beneficial interests of the respective parties must be determined at the time when the property was purchased and the trust created. The fact that the mortgage debt was repaid by your brother is therefore not relevant in determining the extent of the interests of the parties in the property, although it may be relevant on an equitable accounting between the parties. The purchase price is what is paid in order to acquire the property and mortgage instalments are the amount paid to the lender from whom the money to pay some or the entire purchase price that was borrowed. Therefore, mortgage repayments are payments towards securing the release of a charge the parties created over the property purchased rather than contributions towards purchase price. In your case we have considered the following: • the title for the property is in your name only • your sibling paid the deposit to purchase Property B • you obtained the mortgage loan for the balance of the purchase amount of Property B in your name, • your sibling is making the mortgage loan repayments, and • there are no documents signed by you that support the existence of an express trust. It has been determined that a resulting trust has arisen in proportion to the contributions that you made in purchasing the property. The amount you borrowed represents your proportionate share of the purchase price to which the resulting trust applies. Any mortgage repayments made by your sibling are not included as they were payments made in order to release a claim that another party had over the property, rather than a part of the purchase price. Therefore, in the absence of an express trust you would be liable for the CGT on your proportionate share of the purchase price if Property B was sold.