Private ruling: Capital gains tax
Date of advice: 5 March 2020
Published: April 2020
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did the change in bare trustee in the 20XX-XX income year give rise to a taxable capital gains tax (CGT) event? | A1: No | Q2: Can the capital gain or capital loss be disregarded upon the disposal of the property? | A2: Yes


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 108-5 | Income Tax Assessment Act 1997 Subdivision 118-B

Reasons for decision: Summary: Capital gains tax provisions Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a CGT event happens to a CGT asset. The property is a CGT asset (section 108-5 of the ITAA 1997). Under section 104-10 of the ITAA 1997 CGT event A1 happens if you dispose of a CGT asset. An entity may have legal title to a CGT asset but hold it on trust for a beneficiary. Section 106-50 of the ITAA 1997 states that where a beneficiary is absolutely entitled to a CGT asset as against the trustee of a trust, the asset is treated as being the beneficiary's for CGT purposes. Based on the facts provided, you were absolutely entited to the property. The note to subsection 104-10(2) of the ITAA 1997 confirms that CGT event A1 will not happen merely because of a change in trustee of a trust. Therefore, the change in bare trustee in the 20XX-XX income year did not result in a CGT event. However, a CGT A1 event did happen on the sale of the property in xxxx. This CGT event happened to you as the property was considered to be yours under section 106-50 of the ITAA 1997. Generally, you can disregard a capital gain or loss from a CGT event that happens to your ownership interest in a dwelling that is your main residence. As you satisfy the main residence exemption requirements under subdivision 118-B of the ITAA 1997, any capital gain made on the sale of your residence is disregarded. It is also noted, that your original ownership interest in 50% of the property would also be disregarded for a second reason, being that it was acquired before 20 September 1985 (paragraph 104-10(5)(a) of the ITAA 1997). You therefore have no CGT consequences or CGT liability as a result of the sale of the property.

Relevant facts: You and your late spouse, acquired an ownership interest in a dwelling (the property) before 1985. | The property comprises of a dwelling and land totalling less than two hectares. | The dwelling was your main residence from the date of acquisition. | From the time of acquisition, your late spouse was primarily responsible for the financial obligations in relation to the property. | Given the deteriorating health of your late spouse in xxxx and your limited understanding of English, you and your late spouse chose to transfer legal title of the property to entity A to act as bare trustee for you and your late spouse. | Your late spouse had asked your adult child, B, to assist with managing the family's affairs and manage day to day tasks. | You and your late spouse did not want to show favouritism towards any of your adult children by appointing one over any other to act as sole trustee as at the time they were not getting along with each other. B was living with you and your late spouse at the time and B suggested that it was a safer option for the home to be managed by entity A until such time that your late spouse was of better health. | Entity A was managed by B. | You, your late spouse and entity A entered into a written agreement confirming the beneficial ownership remained with you and your late spouse. | You and your late spouse did not receive any consideration for the transfer of legal title of the property to entity A. | The change in legal title to the property was registered with the relevant office on xxxx. | No stamp duty was paid on the transfer as there was no change in the beneficial ownership of the property as the transfer was to a transferee acting solely as trustee. | Your spouse passed away in xxxx. You acquired the joint interest at the date of death. | After your late spouse's death, you held a vested and indefeasible interest in the property and enjoyed sole benefit and control of the dwelling as your main residence. | In response to changed family arrangements, entity A resigned as the bare trustee of the property and was replaced by C as bare trustee of the property. The change in bare trustee was registered with the relevant office on xxxx. C is your relation. | There was no written agreement in relation to this transfer to C, as beneficial ownership remained with you. | B was undergoing financial difficulty at the time, so you asked C to act as bare trustee only. Entity A's connection with B and therefore the legal title to the property represented a potential risk to your beneficial holding. | Entity A was deregistered in xxxx. | Neither you nor entity A received any consideration for the transfer of legal title to C. | Stamp duty was paid on this transfer as the bank incorrectly assumed at the time of settlement, the transfer to entity C was as beneficial owner. The conveyancer did not send advice to the bank and inform the bank that entity C was acting as bare trustee for yourself. | You are in the process of making an application to recover the stamp duty. | In xxxx you decided to sell your home. The property was listed for sale in xxxx. | C, in their capacity as bare trustee, facilitated the disposal of the property to an unrelated third party on your behalf on xxxx, pursuant to instructions from you, with settlement scheduled for xxxx. The new owner was registered as the legal owner on xxxx following settlement. | The sale proceeds of the property are to go to you so that you can buy a new home. | The dwelling remained your main residence from the acquisition date to the settlement date. | Utility charges and water rates notices reflect your name up until the date of disposal. | You funded the costs of residing in and maintaining the property personally; in more recent years, this was with the assistance of family. | Neither B nor C contributed to the cost of acquiring or maintaining the property nor exercised any control over the property. | Neither B nor C offered any consideration for the respective transfers of legal title to the property. | The property was not used for the purpose of producing assessable income at any time during your ownership period. | C has acknowledged by way of signed statement as part of a legal proceeding their status as bare trustee.