Private ruling: Legal v equitable ownership
Date of advice: 26 August 2025
Published: 27 October 2025
Ruling period: Year ending 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q2: Will CGT event A1 happen when you transfer the legal interest in the Property to your sibling? | A1: Yes

Relevant facts and circumstances: Your accountant advised in the initial letter that the strategy to purchase both properties allowed the siblings to own their respective homes . You and your sibling entered into a contract for Houses and Residential Land, as the buyers of Property A. The address provided by both you and your sibling on the contract for the purchase of the Property was Property B. The Home Loan Interview Guide (HLIG), conducted on DD MM 20YY for the purchase of Property A, identifies both you and your sibling as the customers seeking the loan. • Why is the proposed length of the loan term appropriate for the customers' needs? Customers have sought the maximum loan term in this instance. It is very important to them that in the initial stages of the loan that they have a minimum repayment which will be easy to manage, as they are unsure of what the monthly costs (insurance/rates/maintenance) will look like and ensure that they have plenty of UMI to fall back on, especially in times of higher expenditure. Their request is considered reasonable in view of their ages. The purpose of the loan was to 'cash out to pay for construction on new home on vacant land. Customers introduced to the financial institution by a builder. The siblings originally called seeking lending to purchase the land and construction. Customers did not proceed with this deal, but purchased a block of land (no lending required). Since they purchased the land, the builder has constructed a dwelling on the land for the siblings. The sibling's parent works for the builder and due to their longstanding relationship with the builder, no payment for construction has been required prior to the siblings moving into the home. Now that the house is complete, the customers are now seeking a "Cash Out" loan of $XXX to pay for the building. This is the siblings second home they own with Property B being an investment property. They now intend to move out of home and reside in the new property. Customers are hardworking young people who hope to accumulate further investment properties later on. They like the stability that property gives them. They wish to use Property B as additional security for this loan to contain their LVR to within XX% as it is important to them to keep the costs for lending as low as possible. • Why is this product/feature the chosen option for the customer(s)? Current investment property is structured as a specific Loan and they wish to have a similar set up on the new lending. It is important to them that they pay no ongoing or annual fees for their lending. They do not wish to have any extras with the loan. They want a low interest no fee easy to manage loan. They have requested that the specific structure be implemented. Current promotional interest rate XX% and $0 Approval fee has added to the attractiveness of the product. • Why is this product/feature the chosen option for the customer(s)? They are both paid on a weekly basis and have requested that repayments align with their income. I have advised them that repayments can be altered in the future should they require them to be varied. Customers are also seeking repayments to cover both interest and principal. It is very important to the customers that over time, they gain equity in the property, which will enable them down the track to utilise equity for further property investment. • Document substantial benefit Property and lending in joint names. Funds to be used to pay for the construction of home on the land for their owner occupation. • Describe the reasons why the applicant/s want to be a co-borrower. Relationship - siblings Customers jointly own this property and their investment Property B. Both customers have an equal share in the properties, and accordingly want both owners on the lending associated with the properties. • Why is this product/feature the chosen option for the customer(s)? Discussed benefits of the break free package, however customers advise that they are very happy with the structure of the Loan and that they wish to keep the "Easy" to begin with. They advised that should they wish to restructure the loan down the track into a fixed or split facility, they will consider the break free at this stage. • Why is this product/feature the chosen option for the customer(s)? Customers will utilise redraw in lieu of offset facility. Product does not qualify for offset facility. • Please clearly detail your conversation with the customer(s) and the outcome. Discussed at length with the siblings "Plan B" and how important it would be for them to have sufficient cover should something happen to either of them. Customers are reliant on both incomes to meet their lending commitments, and would need to sell their properties should something happen to them. They advise that they have some insurances within their Super, however, both were unable to confirm amounts and types. Advice Ready forms completed. The Applicant/Guarantor Declaration was signed and dated by both you and your sibling. Both you and your sibling provided the Statement of Financial Position to the financial institution. The financial institution letter of offer is addressed to you and your sibling for the amount of $XXX, for the construction of a house for owner occupation. The offer was signed and dated by both you and your sibling. Security for the loan is a registered mortgage over Property B given by both you and your sibling. New or additional security for this loan is registered mortgage over Property A. You and your sibling are named as the registered owners, as tenants in common, on the titles. Statutory Declaration provided by you of Property B provides that you are the registered proprietor of the property situated at Property A. You advised that you have executed mortgaged dated (no date) in favour of the financial institution. The document is signed and dated. Statutory Declaration provided by your sibling of Property B being the registered proprietor of Property A. Your sibling advised that they have executed a mortgage dated (no date) in favour of the financial institution over the property situated at Property A. The document is signed and dated. The financial institution loan payment request account is in the name of both siblings. The applicant name is both siblings. You and your sibling each completed a Statutory Declaration stating that the loan proceeds from the financial institution were being used to pay in full the builder in full payment of home recently build at Property A. The financial institution Home Loan Statement addressed to your sibling at Property A is in the name of both siblings for the loan repayments.

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 CGT event occurring. The most common CGT event, event A1, occurs under section 104-10 of the ITAA 1997 when there is a change in ownership of a CGT asset. Accordingly, when applying the CGT provisions on the sale of property, ownership must be considered. It must be determined who had equitable ownership of the property. The legal owner of the property is recorded on the title deed for the property issued under that State's legislation. It is possible for legal ownership of property to differ from equitable ownership. An individual can be a legal owner but have no equitable ownership in an asset. Where equitable 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 equitable owner. An equitable owner is defined as a person or entity who is beneficially entitled to the asset. To establish occasions where legal and equitable ownership are not the same (i.e. a trust), there needs to be evidence to rebut the standard presumption that legal and equitable interests are the same. This evidence ordinarily includes: • contemporaneous documentation that clearly shows the parties' intentions at the time the property was purchased, and • documentation that clearly shows that the parties treated the property in accordance with those intentions during the ownership period. Gibbs CJ stated in Muschinski v. Dodds [1985] HCA 78 that the relevant principles included there being contemporaneous evidence: Where both transferees have contributed to the purchase money, the intentions of both are material, but where only one has provided the money it is his or her intention alone that has to be ascertained. The evidence admissible to establish the intention of the real purchaser will comprise 'the acts and declarations of the parties before or at the time of the purchase... or so immediately thereafter as to constitute a part of the transaction' ( Charles Marshall Pty Ltd v Grimsley [1956] HCA 28; (1956) 95 CLR 353 at 365) In relation to evidence of a trust arrangement, the following should also be noted: • contemporaneous evidence includes any documents such as emails, diary entries, bank documents, correspondence with third parties involved in the transaction, etc., that were created at the time of the property's purchase, • where there is little or no contemporaneous evidence of intention and the terms of an arrangement, formal documents prepared many years after a property was purchased will be of little probative value, and • the evidence must be unambiguous. In the absence of clear and compelling evidence to the contrary, the property is considered to be owned by the people registered on the title. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners contains guidance on the issues involved where the equitable interest in a property may not follow the legal title. As stated in paragraph 41 of TR 93/32, the Commissioner considers 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. We will assume where taxpayers are related, e.g. husband and wife, that the equitable right is exactly the same as the legal title. Trusts may be of three kinds: express, constructive, or resulting. | Detailed Reasoning - Resulting or implied trusts: On the purchase of real property, a resulting trust may be presumed where the legal title that vests in one or more of the parties does not reflect the respective contributions of the parties to the purchase price. A resulting trust arises by operation of law and falls into two broad categories. One such category is where someone purchases property in the name of another ( Calverley v. Green [1984] HCA 81). If a resulting trust arises, the party, or parties, who hold the legal title is, or are, presumed to hold the property upon resulting trust in favour of those who contributed to its purchase cost. That is, the law presumes that the purchaser, as the person providing consideration for the purchase intended to retain the beneficial interest, although the legal interest is in the other's name. The presumption of resulting trust may be rebutted by: • a presumption of advancement that arises and is not rebutted, or • evidence of the contributors' common intention at the time of the property purchase contrary to the resulting trust arising: Calverley v. Green. However, there are instances where this application may not apply. This is where the property is transferred to the purchaser's immediate family such as a spouse or a child. In such circumstances, the presumption of a resulting trust is replaced by the 'presumption of advancement'. The rebuttable presumption of advancement deems the purchaser to have prima facie intended to advance the interests of the family members (i.e. an absolute gift). | Detailed Reasoning - Express Trust: An express trust is one intentionally created by the owner of property in order to confer a benefit upon another. It is created by express declaration, which can be affected 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, subject matter, and the object of the trust. While trusts can be created orally, all State Property Law Acts contain provisions that preclude the creation or transfer of interests in land except if evidenced in writing. | Detailed Reasoning - Constructive Trusts: A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned. It applies whenever equity considers it unconscionable for the party holding title to the property in question to deny the interest claimed by another. The existence of a constructive trust is dependent upon the order of the court. | Detailed Reasoning - Application to your circumstances: In your case, there was no constructive trust. The other two types of trusts, require clear contemporaneous evidence in order to either establish that there was an express trust or to rebut the presumption of advancement such that a resulting trust may have arisen. You have not provided any contemporaneous evidence to support Property A was held on trust for your sibling. The evidence you have provided shows that both you and your sibling applied for the loan for the purposes of repaying the builder for the dwelling construction. The financial institution Home Loan Statement is in both your names and therefore you were both responsible for the loan repayments. The loan documents clearly state that the 'customers' wanted to accumulate further investment properties in the future. The loan repayments would align with your weekly incomes. Property B was also used as security for the borrowing. The Statutory Declarations provided by you and your sibling states that you are both the registered owners of Property A. We consider, based on the evidence, that you were both the legal and equitable owner of the Property. Capital Gains Implications When determining legal v equitable ownership, our starting point, as noted in TR 93/32 is that the equitable ownership of the Property is the same as the legal ownership. The onus then lies with the taxpayer to rebut this conclusion through evidence to the contrary. You and your sibling are both registered on the Property A title as tenants in common, and you were both named as applicants on the loan documents. Therefore, you hold an equal share in Property A with a legal and equitable interest in accordance with TR 93/32. For the purposes of section 108-7 of the ITAA 1997, your interest in Property A is treated as a separate CGT asset which is subject to a CGT event A1 event unless it can be demonstrated that the property was held on trust for your sibling. We therefore conclude that you hold a legal and equitable ownership interest as an equal owner of Property A and consequently, if you transfer your legal ownership of Property A to your sibling you will have a CGT event A1. You may be entitled to a 50% CGT discount under Division 115 of the ITAA 1997 as you held your share of the Property longer than 12 months, provided you meet the relevant criteria.