Private ruling: Capital gains tax
Published: May 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you disregard the capital gain from the sale of the property? | A1: Yes.

Relevant facts and circumstances: Your relatives purchased a property prior to 20 September 1985. When one of your relatives passed away, your other relative became the sole owner of the property. In the 19XX financial year, your relative decided to transfer the title of the property into your name. You held the property on trust for your relative. Your relative continued to pay all of the expenses of the property and live in it as their main residence. In the relevant financial year your relative passed away. You were an executor of their estate and a beneficiary under the will. The property passed to you as an executor of the estate. You engaged a local real estate agent to sell the property. The property was sold, and settlement occurred in the relevant financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 106-50; and | Income Tax Assessment Act 1997 subsection 118-195(1).

Reasons for decision: Summary: 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 capital gains tax (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, you may hold a legal ownership interest in a property for another individual in trust. Section 106-50 of the ITAA 1997 states that if an entity is presently entitled to a CGT asset, any act by the trustee is treated as if it was carried out by that entity. This situation would arise if there was a bare trust in existence. The term 'bare trust' usually refers to a trust under which the trustee holds property without any interest therein, other than by reason of holding the title to the property as trustee. The trustee of a bare trust should have no control over the CGT asset within the trust and all of the trustee's actions should be at the instruction of the beneficiary. The beneficiary of a bare trust would be the beneficial owner of the CGT asset and would be liable for CGT upon the sale of the asset. | Detailed Reasoning - Capital gains tax: As per subsection 118-195(1) of the ITAA 1997, a capital gain or capital loss you make from a capital gains tax (CGT) event that happens in relation to a dwelling (or your ownership interest in it) is disregarded if: (a) you are an individual and the interest passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. | Detailed Reasoning - And also one of these items: 1 the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income your *ownership interest ends within 2 years of the deceased's death, or within a longer period allowed by the Commissioner ........... 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary - that individual | Detailed Reasoning - Application to your circumstances: In this case, your relative transferred title of their main residence to you in the 19XX financial year. Although you were the legal owner of the property, you had no beneficial ownership in the asset. Your relative continued to pay all the expenses and treated the property as their main residence. As we consider you held the property on trust for your relative, beneficial ownership did not change when the title was transferred to you. Upon your relative's death, the property passed to you as the executor of the deceased estate. The deceased acquired their ownership interests in the property before 20 September 1985. The property was sold and settlement occurred within 2 years of the deceased's death. Therefore, as per subsection 118-195(1) of the ITAA 1997, the capital gain you made from the sale of the property is disregarded.