Private ruling: CGT - legal vs beneficial ownership
Date of advice: 4 October 2023
Published: 20 November 2023
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did CGT event A1 occur on disposal of the Property? | A1: No.

Relevant facts and circumstances: Your relative was divorced in 19XX. The relative started a defacto relationship and a family. In around 20XX, the relative told you the second marriage had failed and the spouse was going to take the Property. The relative asked to put the Property in your name so they would have somewhere to live. You agreed to this and the Property transferred into your name. You did not pay any money for the Property. The agreement was verbal. There was no paperwork about putting the Property in your name. The relative was going to live in the Property because they would lose another property where they were living. The second marriage ended. In the divorce proceedings, the judge considered the Property was the relative's property but being held in your name. In early 20XX the relative married again and started another family. They lived in the Property. In 20XX your relative was diagnosed with a terminal illness and requested the transfer of the Property back to their name to support their family. The Property was transferred back to your relative's name. You have never paid any money towards the Property and never received any money from it. You never lived in the Property. Your relative died. You were not a beneficiary in the will.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10

Reasons for decision: Detailed Reasoning - Legal and beneficial (equitable) ownership: The legal owner of the property is recorded on the title deed for the property issued under that State's or Territory's legislation. It is possible for legal ownership of property to differ from beneficial ownership. An individual can be a legal owner but have no beneficial ownership in an asset. 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. A beneficial owner is defined as a person or entity who is beneficially entitled to the income and proceeds of an asset. To prove that a different equitable interest exists, there must be evidence that a trust has been established such as where one party is taken merely to hold their interest in the property for the benefit of the other party. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners sets out the principle that equitable interest is presumed to follow the legal interest and the Commissioner considers that there are extremely limited circumstances where the legal and equitable interests are not the same. Where it is contended that the beneficial ownership and legal ownership of a property are not the same, there must be evidence to show that the legal owner holds the property in trust for the beneficial owner. | Detailed Reasoning - CGT event A1 - disposal of a CGT asset: CGT events are the different types of transactions that may result in a capital gain or capital loss. The most common CGT event is CGT event A1. Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) explains that this event occurs whenever there is a change of ownership for a CGT asset, for example, when you dispose of a CGT asset to someone else. Land and buildings are CGT assets. CGT event A1 will happen if the transfer of legal ownership of the property occurs, and this is treated as a disposal for CGT purposes. However, CGT event A1 does not occur if there is only a change of legal ownership and not a change of beneficial ownership. | Detailed Reasoning - Application to your circumstances: You became the registered legal owner of the property when it was transferred into your name. You paid no money for it. There was no expectation of having any elements of beneficial ownership: you did not live in it, you received no income from it and paid no expenses for it. There was no intention for you to benefit from any future sale of the property. You subsequently transferred the Property back into your relative's name. Based on the facts, the Commissioner accepts that in your circumstances, although you were the legal owner of the Property, it was never intended that you would have beneficial ownership and the intention was that your relative would still be the owner of the Property. It can be reasonably concluded that at the time the legal ownership of the Property was changed back to your relative's name, you did not have a CGT event A1 or any other CGT event occurring to you when your legal ownership ended.