Private ruling: Beneficial ownership and capital gains tax
Date of advice: 24 January 2018
Published: June 2018
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the transfer of the property from one trustee to another trigger a CGT event for the beneficial owner, being you? | A1: No Under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a capital gains tax (CGT) event happens to a CGT asset. A change in the legal ownership of an asset without a change in the beneficial ownership will not constitute a disposal for CGT purposes (subsection 104-10(2) of the Income Tax Assessment Act 1997). A change in the trustee (legal owner) does not constitute a change in the beneficial ownership therefore a CGT event does not arise. In your case, this means that there are no CGT consequences as a result of a change in the trustee. Further information on beneficial ownership can be found in Taxation Ruling IT 2486 and Taxation Determination TD 92/106.

Relevant facts and circumstances: A property (the property) was acquired after 20 September 1985. You were newly married and were travelling overseas and the title of the property was registered in the name of your relative (relative A) for the purposes of asset protection over the property. Relative A held the property in trust as trustee for the beneficial ownership of you. The property was acquired with an initial deposit paid by you and a mortgage was held over the property in the name of relative A to fund the remainder of the purchase of the property. The property was purchased as investment property and a third party real estate agent was engaged by you for the property to be rented. You were listed on the rental agreements drawn for the leasing of the property. You liaised with the real estate agent during your time in Australia and in your absence you instructed the agent to liaise with relative A in your absence. The property was rented at market rate and no related parties resided or rented the property. The rental income received on the property was paid into a bank account in your name and you declared the rental income in your income tax returns. The rental income was paid toward the mortgage repayments in relative A’s name. Relative A obtained no benefit from this arrangement apart from the benefit of assisting you with asset protection. In 20xx, relative A was diagnosed with an illness and fearing that their medical condition would deteriorate, you instructed relative A to resign as trustee and to transfer the property to another relative (relative B) for the continued purpose of asset protection. There was no change in beneficial ownership as a result of this transfer. A valuation was obtained and the transfer of title to relative B occurred in May 20XX. The mortgage in relative A’s name was settled prior to the transfer of the title occurring in May 20XX. Relative B held the property in trust as trustee for the beneficial ownership of you. The arrangements were family arrangements and there was no written agreement between the parties. Relative B did not obtain any benefit of this arrangement apart from the benefit of assisting you with asset protection.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-55