Private ruling: Capital gains tax
Date of advice: 1 December 2017
Published: April 2018
Ruling period: Year ending 30 June 2018.
Date scheme commenced: 19AA

Ruling: Q1: Will capital gains tax (CGT) apply on the transfer of the property? | A1: No.

Relevant facts and circumstances: You acquired a post-CGT commercial property (the property). You are the registered proprietor of the property. The property is leased to an unrelated entity. You are the sole director of Company Z. Company Z is the Trustee for a related superfund (the Fund). It was intended at all times that the property was to be purchased by Company Z in its capacity as Trustee for the Fund. The acquisition costs of the property were paid by Company Z in its capacity as Trustee for the Fund. Since the acquisition of the property, all income and expenses in relation to the property have been returned by the Fund. A Declaration of Trust was made at the time of the purchase of the property. This has been lost and been replaced with a subsequent Declaration of Trust (the Declaration), declaring that the property is held for the benefit of the Fund under the direction of Company Z. You have also provided a copy of your statutory declaration. You would like to rectify the error and transfer the property to Company Z as Trustee for the Fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3

Reasons for decision: Summary: Capital gains tax (CGT) will not be payable on the transfer of the property from you to Company Z as Trustee for the Fund, as the correct legal owner. | Detailed Reasoning - Detailed reasoning: When considering the disposal of 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 asset. Ownership conveys an entitlement to exercise the maximum legally permissible rights over what is owned. In the absence of evidence to the contrary, property is considered to be owned by the person(s) registered on the title. However, in limited circumstances it is possible for legal ownership to differ from beneficial/equitable ownership for taxation purposes. Where beneficial ownership and legal ownership of an asset are not the same, there must be evidence that the legal owner holds the property on trust for the beneficial owner. To resolve the CGT issue, the Commissioner is required to make a finding on the available evidence about whether the property was held on trust for the rightful owner (for the purposes of this private ruling, it is not necessary for the Commissioner to rule whether a constructive trust arose or not). You have provided evidence of the steps taken since the acquisition of the property and the treatment of the rental income by the relevant parties. Conclusion It is accepted that Company Z as Trustee for the Fund has at all times acted with the view that it owned the property and returned income from renting the property to an unrelated entity. Although you have held legal ownership of the property in your individual capacity, the intention on its acquisition was that the property be acquired and held by Company Z (with you as director) as Trustee for the Fund. Therefore, CGT will not be payable on the transfer of the property from you to Company Z as Trustee for the Fund, as the correct legal owner.