Private ruling: CGT - disposal - beneficial ownership
Published: June 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will a capital gains tax (CGT) event occur when the legal ownership of the property is transferred? | A1: No.

Relevant facts and circumstances: In 20XX, you and X signed a contract for the purchase of a property. You were recorded as joint owner to enable X to obtain bank finance for the purchase of the property. X paid the deposit and was responsible for the repayment of the mortgage. You did not make any financial contribution to the acquisition or maintenance of the property and you have never resided at the property. This agreement has been confirmed in statutory declarations made by both yourself and X in 20XX. A second statutory declaration was made in 20XX stating that in the event you predecease X, you will pass the property to X's child. The mortgage has now been discharged and X is seeking to remove you as joint tenant from the title.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 120-20

Reasons for decision: Summary: Under section 120-20 of the Income Tax Assessment Act 1997 (ITAA 1997), an entity will make a capital gain or a capital loss if a 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). | Detailed Reasoning - 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 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, an entity may hold a legal ownership interest in property for another individual in trust. | Detailed Reasoning - Application to your circumstances: In this case, you became a joint tenant on the property with X to enable X to obtain bank finance. You made no financial contribution to the purchase or maintenance of the property and you have never resided at the property. We accept that you were holding the property in trust for X and that X has beneficial ownership of the property. There will be no change to your beneficial ownership of the property when the proposed transfer takes place. Therefore, no CGT event will occur for you at this point in time.