Private ruling: Capital Gains Tax - Beneficial Ownership
Date of advice: 19 July 2016
Published: August 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Did you and your spouse make a capital gain (or loss) when the property was sold? | A1: No.

Relevant facts and circumstances: In 19XX, a relative acquired a block of land located and built a house on the land. In 200X your relative experienced financial hardship and as a result were going to lose the house to the bank. You and your spouse took out a loan to purchase the property on the provision that any loan repayments and costs associated with the house were paid by your relative. You agreed that any profit would always be attributed to your relative. You advised the relevant government departments that the house was not your asset and you did not enter the arrangement with a profit making intention. The property has now been sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 100-20

Reasons for decision: Summary: Under section 100-20 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. CGT event A1 occurs when you dispose of a CGT asset. You are considered to have disposed of a CGT asset if a change of ownership occurs from you to another entity because of some act or event or by operation of law. The capital gain or capital loss is made at the time of the event (section 104-10 of the ITAA 1997). Beneficial ownership A beneficial owner is defined in Taxation Ruling IT 2486 and Taxation Determination TD 92/106. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from the asset. A legal owner is the individual who has their name on the legal documents associated with the CGT asset, an example would be the title deed for a property. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner of a CGT asset that is liable for capital gains tax upon sale of the assets. In some cases, an entity may hold a legal ownership interest in property for another individual in trust. 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. Application to your circumstances In this case, we accept that you and your spouse were not the beneficial owners of the property. Your relative paid all expenses in relation to the property. Your relative was the beneficial owner of the property. Therefore, when the property was sold you and your spouse did not make a capital gain (or loss).