Private ruling: Legal v beneficial ownership
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Can you disregard any capital gain or capital loss made on the sale of a dwelling, used as the main residence of your relative, where the title of the dwelling is held in both of your names? No


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10. | Income Tax Assessment Act 1997 Section 106-50. | Income Tax Assessment Act 1997 Section 109-5. | Income Tax Assessment Act 1997 Section 108-5.

Reasons for decision: Summary: You make a capital gain or a capital loss if and only if a capital gains tax (CGT) event happens to a CGT asset. CGT event A1 will happen when you dispose of a CGT asset to someone else. | Detailed Reasoning - Legal v beneficial ownership: When the disposal of an asset occurs one of the most important elements in the application of the CGT provisions is ownership; both legal and beneficial ownership must be determined. In most cases, in the absence of evidence to the contrary, property is considered to be owned absolutely by the person(s) registered on the title. It is possible for legal ownership to differ from beneficial ownership. In such cases, a trust relationship exists with the legal owner (trustee) holding the property in trust for the beneficial owner (beneficiary). The CGT provisions do not apply to the legal owner of a dwelling if that legal owner holds it in trust for another person and that other person was absolutely entitled to that dwelling as against the trustee (section 106-50 of the ITAA 1997). | Detailed Reasoning - Trust: In certain situations, legal ownership of an asset may differ from the beneficial ownership of an asset. Where the legal and beneficial ownerships of an asset is different, a trust situation occurs. If the beneficial owner is absolutely entitled to a CGT asset as against the legal owner, any act done by the legal owner is treated as if it were carried out by the beneficial owner. An express trust is one intentionally created by the owner of the property in order to confer benefit upon another. It is created by an express declaration, which can be effected 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, certainty of the subject matter of the trust and certainty as to the object of the trust. While trusts can be created orally, all State Property Law Acts contain provisions derived from the Statute of Frauds that preclude the creation or transfer of interests in land except if evidenced in writing. The declaration does not necessarily need to be evidenced in writing at the time that the trust was created, it may be written at a later date. In your situation, the statement which sets out how the property was to be treated was signed and dated after the death of your partner (the other trustee) and after the sale of the property. As such, a trust has not been evidenced in writing and a statement made by one of the trustees (yourself) after the sale of the property is not sufficient to constitute evidence in writing of a trust. As there is not a valid trust, the requirements of section 106-50 of the ITAA 1997 have not been met. Further the fact that you and you partner became joint owners to provide you with comfort because your relative had recently married indicates that you do not intend the property to be simply your relative's property. It shows that they were not absolutely entitled to the property. Therefore, any capital gain or capital loss you made from the sale of your interest in the property cannot be disregarded and must be included in your income tax return in the relevant income year.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: Your relative purchased a property in 19XX. | You and your partner gifted your relative the funds to purchase the property. | The title on the property was in you, your partner, and your relative's names. | The property was purchased early in your relative's marriage and for your and your partner's emotional stability and comfort you were joint owners. | Your partner passed away and the title of the property is now in your name and your relative's names. | During the ownership of the property your relative and their partner have paid all rates, taxes and maintenance on the property, made substantial renovations and generally treated the property as wholly their own. | The property is less than two hectares and has never been rented. | You and your partner have never contributed to the upkeep of the property and have not received any income or compensation in respect of it. | The property has been sold and all proceeds were disbursed to the benefit of your relative. | You have a written statement which sets out how the property has been treated. This statement was signed by you and your relative. It was signed after the death of your partner and after the sale of the property.