Private ruling: Property - ownership
Date of advice: 16 September 2015
Published: September 2015
Ruling period: Year ended 30 Jun 2014.
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you considered to be the owner of the Property for tax purposes? | A1: No.

Relevant facts and circumstances: You and your spouse are the directors and shareholders of Entity X. You entered into a contract to purchase the Property. The lawyer's letter lists the purchaser of the Property as being you or a nominee. The title to the Property was placed in the name of Entity X. The funds for the purchase of the Property were borrowed in the name of Entity X. The original loan has been refinanced and each time the refinanced loan was in the name of Entity X. The Property has been used as the family home and no business activities have taken place at the Property. The council rates, water charges notices and insurance policies have been addressed to you and/or your spouse. You were unaware the Property was held in Entity X's name until you went to sell the property. You believe it was a mistake that the Property's title deed was registered in Entity X's name. Rates, repairs and maintenance, gas, electricity and telephone expenses were never claimed as tax deductions by Entity X in relation to the Property. Your tax agent's email states that some of the interest expense was claimed as a deduction by Entity X in prior years.


Reasons for decision: Summary: The legal owner of real property is the person or entity whose name is registered on the title to a property. In this case, Entity X is the legal owner of the Property. In absence of evidence to the contrary, a property is considered to be beneficially owned by its legal owner (that is the person(s) registered on the title). It is also possible for legal ownership to differ from beneficial ownership. Where beneficial ownership and legal ownership of a property are not the same, there must be evidence that the legal owner holds the property in trust for the beneficial owner. We consider 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. The essential elements of a trust are • the trustee who holds a legal or equitable interest in the trust property • the trust property which must be property capable of being held on trust and which includes a chose in action • one or more beneficiaries other than the trustee, and • a personal obligation on the trustee to deal with the trust property for the benefit of the beneficiaries. Trusts may be of three kings: express, constructive or resulting. Express trust An express trust is one intentionally created by the owner of the property in order 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, it is necessary that there is certainty of the intention to create a trust, the terms of the trust, the trust property and the object of the trust. In your case, you have not provided any documentary evidence that Entity X holds the Property for you as a trustee. You have stated that you were unaware that Entity X was listed as the owner of the Property on the title deed until you sold the Property. It is considered in the absence of documentation that an express trust does not exist in your case. Constructive trust A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned. This trust is essentially a remedial trust imposed by the court when property has been acquired in such circumstances that the owner of the legal title should not, in good conscience, retain the beneficial ownership, but instead in the courts opinion, should simply hold the property as trustee. The facts of this case do not indicate the existence of a constructive trust. For example, there is no court order or any wrongful act where it could be said that a constructive trust exists. Resulting trust A resulting or implied trust arises in the absence of an express or implied intention when the law presumes an intention to the parties. For example, when a person pays the purchase price of a property and causes the property to be placed in the name of some other person, it is presumed that the transferor intends the transferee to hold the property in trust for the transferor. This presumption may be rebutted by evidence. In this case, Entity X purchased the Property with funds which had been borrowed in its' own name. The borrowed funds have been refinanced by new loans held in the name of Entity X. Whilst it is acknowledged that you may have been involved in arranging the borrowings, this occurred in your role as a director of Entity X and not as a beneficiary of a trust. Therefore, it is considered that Entity X is both the legal owner and the beneficial owner of the Property.