Private ruling: CGT - legal vs beneficial ownership
Date of advice: 2 June 2022
Published: August 2022
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Were you the owner of the property for capital gains tax (CGT) purposes at the time of its disposal? | A1: No.

Relevant facts and circumstances: A property (the Property) was acquired in 20XX. You are the legal owner of the Property. Your relative's partner (Person A) wished to purchase a property but was unable to secure finance. They approached you, knowing that you were in a position to obtain finance, with a view to property being purchased in your name. For family reasons, you agreed to act as nominee on the basis that: • Person A would be responsible for all costs incurred in acquiring and maintaining the property • you would be indemnified in respect of any taxation issues that may arise; and • you would act as instructed by Person A in respect of the property. Person A paid the deposit and stamp duty in respect of the property and organised finance for the balance of the purchase price Person A and their partner have occupied the property from its acquisition until its sale. They have made all payments due on the loan and have paid all of the outgoings associated with the property. At no time did you live in the Property or receive any income including rental income in respect of the Property. Several years ago, Person A's lawyer prepared a Deed of Acknowledgment (the Deed) to formalise the terms of the arrangement. The parties to the Deed were you and Person A. The Deed provided that Person A had agreed to and must place the Property on the market for sale. The Deed also provided that Person A had absolute discretion to determine and authorise how sale proceeds were used, once costs of sale had been paid, mortgage had been discharged and $XXX gift to you had been made. The Property was recently sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 104-10(2) | Income Tax Assessment Act 1997 section 106-50

Reasons for decision: Summary: No. At the time of disposal of the CGT asset, you were the legal owner, not the beneficial owner. | Detailed Reasoning - Detailed reasoning: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a CGT event occurring to a CGT asset that you have an ownership interest in. For this reason, it is important to establish who is the owner of a CGT asset at the time a CGT event occurs. Under section 104-10 of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset. On disposal of a CGT asset, it is the beneficial owner who will be liable for any capital gain or loss. In the majority of instances, legal and beneficial interests are held by the same person or entity. In exceptional circumstances, legal interest and beneficial interests may not be held by the same person or entity. Legal interest in a property is determined by the legal title to the property according to the relevant property law legislation in the state or territory in which the property is situated. A beneficial interest refers to a person or entity who is beneficially entitled to the income and proceeds from the property. | Detailed Reasoning - Absolutely entitled beneficiaries: An individual may hold a legal ownership interest in a dwelling for another individual in trust. Where a CGT asset is held on trust for an absolutely entitled beneficiary, from the time of the beneficiary becoming absolutely entitled, the asset will be considered to be owned by the beneficiary. This means that upon disposal, it will be the beneficiary who is liable for any capital gains or losses, and not the trustee. Where a property title includes the name of a person who is a nominee or trustee, ownership must be decided on an individual basis on the available evidence to establish the facts. | Detailed Reasoning - Application to your circumstances: A deed was created regarding the sale of the Property. It required the proceeds of sale to be distributed as outlined in the deed, with Person A having absolute discretion to determine and authorise how the balance of proceeds would be used following payment for costs of sale, discharge of mortgage and payment of a cash gift to you. It also provided that all of the funds for the acquisition of the Property including purchase price and stamp duty had been provided by Person A. Based on the available evidence, although you were the legal owner of the Property, you were not the beneficial owner. Therefore, on disposal of the Property, you were not the owner for CGT purposes.