Private ruling: CGT - legal v beneficial ownership
Date of advice: 5 August 2024
Published: 16 September 2024
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will a capital gains tax event A1 happen to you when two thirds of the legal title in the Property is transferred to your siblings? | A1: No. Capital gains tax (CGT) event A1 occurs when there is a change in ownership of a CGT asset under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997). However, CGT event A1 does not occur if there is only a change of legal ownership and not a change of beneficial ownership. Having considered your circumstances and the relevant factors relating to your situation, the Commissioner accepts CGT event A1 will not occur when your siblings also become legal owners of the Property. Although you have the sole legal ownership interest in the Property, it was never intended for you to have all of the beneficial ownership of the Property, with you and your siblings each having an equal beneficial interest in the Property from when it was purchased. Therefore, neither CGT event A1 nor any other CGT event will happen when you transfer a one third legal ownership in the Property to each of your siblings.

Relevant facts and circumstances: You sought advice from a mortgage broker (the Broker) in relation to obtaining a loan to purchase a property while you were employed with a former employer. You used your former work email address in relation to this matter, to which you no longer have access. The Broker recommended that a loan be obtained solely in your name for the following reasons: • One of your siblings, Person A, was servicing another loan which would impact the assessment of their serviceability on the mortgage by the lender. • Your other sibling, Person B, had a recorded default on their credit file and was soon to be unemployed due to their employer ceasing business. Additionally, Person B intended travelling overseas for a period of time, which would impact their assessment of serviceability on the loan by the lender. • The Property was classified as unzoned land and there were difficulties in finding a lender who would lend on the Property; and • You were employed on a full-time basis with sufficient income to service a loan. You lodged a loan application with a banking institution (the Bank). The Bank issued a letter of offer to you for a specified amount, for the purpose of purchasing a specified property, with a loan period of more than 25 years (the Loan). You purchased the property specified in the Loan offer (the Property) with you being listed as the sole registered titleholder. The Property was purchased using a combination of the borrowed funds and funds gifted equally to you and your siblings by your parents. Your parents paid for the deposit amount and acquisition costs incurred in relation to the purchase of the Property. The Property was unimproved vacant land with a shed located on it. The intention when it was purchased was to construct a dwelling on it to be used as a family holiday house. You and your siblings did not seek any taxation and/or legal advice in relation to the ownership structure. In your culture it is common for the eldest to take care of younger siblings, and it was an expectation of the parents that the eldest would do so. Therefore, when the broker had recommended that the Property be solely purchased in your name your siblings did not have any concerns or objections. You have a provided a handwritten document signed by you and your siblings at the time of the purchase of the Property which outlined the following: • You and your siblings agreed to purchase the Property solely under your name with the intention to include your siblings on the Property title at a future date. This was the simplest advice received by the mortgage broker to enable a loan to be obtained from a bank for the purchase of the Property. • You and your siblings would each contribute an equal one third share of all costs to purchase the Property and to maintain or improve the Property. No other written agreements, deeds or contracts were entered into by you and your siblings in relation to the Property. You are the sole holder of a bank account into which you and your siblings deposited amounts to repay the Loan. You and your siblings have contributed equal amounts in relation to Loan repayments and holding costs arising in relation to the Property since it was purchased. You married almost 10 years ago, and at that time you and your siblings sought legal advice in relation to protecting your respective interests in the Property in the event of a marriage breakdown. You have provided an email that Person A sent to their legal representative at that time which included the following information: • Settlement for one of Person A's properties had occurred and they were now focusing on their other property, being the Property, in which they had a one third share in a block of land with their siblings, but the title and mortgage were in your name. At the time of purchase, it was easier to do it that way. • Person A indicated that: o You needed your siblings to either pay out your share or refinance into all of your names so that it would free up some lending capacity for you. o The siblings would like to transfer the Property into either all of your names or a trust account for asset protection, in case one of them got divorced in the future. o Person A was hoping to extract their share of the equity to leverage into another investment property, but that it could be an option to leave the Property in your name to save on the fees if there was a way the siblings could achieve all of this. You provided an email that you sent to Person A in response to their above email to their legal representative, with the subject 'Pass to solicitor' which included the following information: • You indicated that: o You and Person B were aware that Person A had been liaising with them in relation to the Loan, that you had applied for and had approved, but that the Property to which the mortgage relates is for you and your siblings; and o As advised by Person A, you and your siblings were requesting legal assistance in order to show that the mortgage is paid by you and your siblings and that the debt belongs to all the siblings. Almost 10 years ago, a charge (the Charge) was lodged with the State Government Department in relation to the Property which outlined that: • You were the registered proprietor of the Property. • You acknowledged that Person A and Person B: o Each contributed an equal share of the purchase price of the Property and its acquisition; and o Each equally contributed to the costs to maintain the Property, inclusive of al mortgage payments, rates and other expenses of ownership since the acquisition of the Property. • Person A and Person B acknowledged their obligation to continue to make their equal share of the mortgage payments and upkeep of the Property; and • You would pay Person A and Person B an equal share of all net proceeds from the sale of the Land, and if the Property was rented, any net rental amount would be distributed equally between you and your siblings. The Charge was registered with a registration notice being issued by the State Government Department. The Loan was repaid. No improvements have been made to the Property since it was acquired, with it being used for private purposes by you and your siblings to store personal goods and for holiday purposes. The Property has not been used to produce income. You and your siblings wish to construct a dwelling on the Property to be used for private purposes, with the Property continuing to be owned indefinitely. You and your siblings have received preliminary verbal advice from a broker in relation to obtaining finance to fund the construction of a house on the Property when it was indicated that it would be a struggle to obtain finance without you all being on the title of the Property due to your loan servicing. You propose adding Person A and Person B's names on the Property title to overcome the issue in being able to source funding to construct a house on the Property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 102-20 | Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-5