Private ruling: CGT main residence exemption
Date of advice: 13 July 2023
Published: 28 August 2023
Ruling period: Year ended 30 June 2023
Date scheme commenced: 1 July 2022

Ruling: Q1: Are you required to declare a capital gain upon sale of the property, with CGT event A1 occurring under section 104-10 of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: You purchased the property a number of years ago. You had a mortgage over the property which was owner occupier. You lived in the property as your main residence for a couple of years. Your parent wanted to purchase the property from you but was not able to get a loan. You and your parent had an arrangement whereby your parent would transfer an amount to you in consideration of the prior loan repayments and would take over the mortgage along with all other expenses such as rates, insurance, repairs and maintenance on the property. Your parent moved into the property. You moved back in a couple times when you were travelling or between properties and would give your parent board to cover the expenses. You made a will a few years ago which listed the property as one of your assets and does not describe it as a partial ownership interest in the property. Your parent has passed away and the property was not mentioned in their will as one of their assets to be distributed between their children. The title of the property has remained in your name and was never transferred to your parent. You had no written agreement with your parent. There was no agreement over what would happen if your parent did not pay the mortgage or expenses on the property. You have no contemporaneous emails/letters/agreements with your parent or for your own records. The property was sold several months ago.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a capital gains tax (CGT) event occurring. When considering the sale of property, the most important element in the application of the CGT provisions is ownership. It must be determined who had ownership of the property. An individual can be a legal owner but have no beneficial ownership in an asset. Under subsection 104-10(2) of the ITAA 1997, a change of ownership is not deemed to have occurred if you stop being the legal owner of the asset but continue to be its beneficial owner. As a result, it is the beneficial owner of a CGT asset that is liable for capital gains tax upon the sale of the asset if they are deemed to be absolutely entitled to it (section 106-50 of the ITAA 1997). In the absence of evidence to the contrary, the property is considered to be owned by the people registered on the title. However, it is possible for legal ownership to differ from beneficial ownership. Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property on trust for the beneficial owner. We consider that there are extremely limited circumstances were 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. You have not been able to provide the Commissioner with sufficient evidence that the property was held in trust by you for your parent, simply paying the mortgage doesn't prove an intention regarding a trust and who held beneficial interest. Paying a mortgage is relevant but in the absence of anything else showing intent it can point to more than one possible intention. You have listed the property as one of your assets in your will and there is no mention that you were holding it on trust for your parent. The property was not listed in your parents will as one of their assets to be distributed to their children. There was no written agreement or any contemporaneous evidence of the sale of the property to your parent. Consequently, as the owner of the property you are liable for capital gains tax on the gain made when the property was sold. CGT event A1 occurs in your circumstances under section 104-10 of the ITAA 1997.