Private ruling: Capital gains tax
Date of advice: 21 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2010

Ruling: Q1: Will capital gains tax (CGT) event A1 trigger at the time of the transfer of the property to your children? | A1: Yes

Relevant facts and circumstances: On XX February 20XX you and your spouse acquired the property. Settlement occurred on XX April 20XX at which time your child and their spouse (children) moved into the property. Your intentions when purchasing the property was to assist your children acquire their own home as they were not in a financial position to obtain lending at that time. You obtained the lending to fund the purchase of the property. You made an agreement with your children that they would: ● Pay the loan repayments. ● Pay all other expenses including rates, insurance, repairs, maintenance and improvements. ● Purchase the property from you when the children were in a financial position to do so. ● The consideration for the purchase would be the outstanding balance of the loan at the time of purchase plus additional costs/amounts owed by the children. There was no formal written agreement. If the agreement did not eventuate and the transfer did not occur, you retained the property including the right to sell the property to an unrelated third party. Your children paid the loan repayments into your bank account which was then paid to the loan account. On the months when your children were not in a financial position to pay the full repayment amount, you would make up the difference required. You have kept a record of these amounts as additional amounts owed by the children. Rent was not paid by your children for the use of the property; as such you have not declared rental income nor claimed deductions relating to the property in your income tax returns. In your Will, you left all your estate to your spouse, however upon the event that your spouse predeceases you, you have left the property to your children, subject to all mortgages and encumbrances. The property was transferred from you to the children on XX July 20XX and the agreed consideration was paid to you.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-15 | Income Tax Assessment Act 1997 section 110-25 | Income Tax Assessment Act 1997 subsection 116-30(2)

Reasons for decision: Summary: Capital gains tax (CGT) is the tax that you pay on certain gains you make. You may make a capital gain as a result of a CGT event, happening to an asset in which you have an ownership interest. The most common CGT event, CGT event A1, occurs when you dispose of your ownership interest in a CGT asset to another entity. 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 Income Tax Assessment Act 1997 (ITAA 1997)). When considering the disposal of your interest in a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the property. 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. 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. In your case, you became the legal owner of the property in an effort to assist your children to obtain their own home. A family agreement was made allowing your children to live in the property, paying you the amount required to meet the loan payments and associated costs related to the property, until they were in a financial position to obtain lending and purchase the property from you. You have made financial contributions to the purchase and upkeep of the property on the occasions that your children were not in a financial position to pay the required amounts at the time they fell due. Although you allowed your children to reside in the property, it is considered that you maintained the beneficial entitlement to the property. Therefore you are both the legal and beneficial owner of the property and upon the transfer of the property to your children on DDMMYYDMMYY, CGT event A1 was triggered. Any capital gain or loss from this change in ownership will need to be included in your income tax return for the 2017-18 financial year.