Private ruling: Legal vs Beneficial ownership
Date of advice: 29 July 2025
Published: 29 September 2025
Date scheme commenced: 1 July 202X

Ruling: Q1: Does the Commissioner consider you to be the beneficial owners of the Property for the purposes of the Capital Gains Tax (CGT) provisions in the Income Tax Assessment Act 1997. | A1: No. The Commissioner does not consider you to have a beneficial interest in the Property. | Q2: Will you be entitled to the main residence exemption under section 118-100 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to a future disposal of the Property? | A2: Not applicable. This private ruling applies for the following periods: 30 June 202X to 30 June 202Y

Relevant facts and circumstances: The Property was first purchased in 198X by you, the Taxpayers, Persons A and B. You are married with children, all who have resided in the Property as your family home since its purchase to the current time. You incurred the initial costs to fund the build of the Property and were responsible for renovation costs after the Property was first purchased. Your business, Company A, registered in 198X, was bankrupted and deregistered in 20XX. The title of the Property was transferred to Person B's brother (Person C) when he purchased the Property from you prior to bankruptcy proceedings, and settlement of the Property occurred on DDMM19YY for $XX. The Property was sold to Person C as you were facing bankruptcy due to business failure, and the Property would have formed part of your bankrupt estate. The Property was not transferred back to you following the bankruptcy because of the material transfer taxes and stamp duty that would have had to be paid. Person C never resided in the Property before or during his ownership period and has had no intentions to do so. Person C is a non-resident of Australia for tax purposes and resides overseas. All your material possessions and that of your children's, have always been stored at the Property. You provided funds for the mortgage payments and all ongoing costs and expenses associated with the Property including maintenance and renovation costs, and utility bills. Under Person C's Will at Clause 2(f)(i), he gives your children his own personal estate as well as his interest in the Property, or any property purchased in lieu of the Property, as tenants in common in equal shares. The arrangement between you and Person C regarding the Property was verbal and you were not able to provide any contemporaneous evidence of this. Person C provided a statement which was drafted and signed by him, many years after the arrangement took place.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 Section 118-100

Reasons for decision: Summary: Although the questions in the private ruling application do not address the legal and/or beneficial status, nor the main residence exemption, of Person C, I have included a discussion of these issues within this section of the private ruling response (the Reasons for decision) as it is not part of the private ruling. The responses concerning Person C are warranted for the purpose of completeness. | Detailed Reasoning - Issue 1: Capital Gains Tax - Legal vs Beneficial Ownership | Detailed Reasoning - Question 1: Does the Commissioner consider you to be the beneficial owners of the Property for the purposes of the Capital Gains Tax (CGT) provisions in the Income Tax Assessment Act 1997. | Summary: No. | Detailed Reasoning - Detailed reasoning: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. The Property is a CGT asset (section 108-5 of the ITAA 1997). Under section 104-10 of the ITAA 1997 CGT event A1 happens if you dispose of a CGT asset. An individual can be a legal owner but have no beneficial ownership in an asset. It is the beneficial owner that will have a CGT event upon sale of a CGT asset. In some cases, an entity may hold a legal ownership interest in property for another individual in trust. 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. We consider in circumstances where the beneficial ownership and the legal ownership are not the same, there must be evidence that the legal owner holds the property on a trust for the beneficial owner. There must be a valid trust over the property and that the equitable owner is entitled to benefit from the property. | Detailed Reasoning - Application to you:: • you do not own the Property anymore - you sold it to Person C to remove it from the estate and to protect yourselves from bankruptcy • you are not the beneficial (equitable) owners even though you are recipients of the benefits by way of residing in the Property - your situation is similar to that of a right to reside. You are not the beneficial owners, therefore there are no CGT consequences. We note that title to the Property indicates that Person C has 100% legal ownership. | Detailed Reasoning - Legal v beneficial ownership: The ATO considers that there are extremely limited circumstances where the legal and equitable interests are not the same and that there is sufficient evidence to establish that the equitable interest is different from the legal title. A person's legal interest in a property is determined by the legal title to that property under the property law legislation in the State or Territory in which the property is situated. Where it is asserted 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. Relevant evidence includes information that evidences the intentions of the parties at the time the property was purchased or transferred from one legal owner to another, and evidence of contributions made by the parties towards the purchase price. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) contains guidance on the issues involved where the equitable interest in a property may not follow the legal title. As stated in TR 93/32 paragraphs 38 to 41, It has been said that if the equitable interest does not follow the legal title, there is some basis for the profit/loss to be distributed on the equitable and not the legal basis. Any capital gain or loss should also be apportioned on the same basis as the rental income or loss. | Detailed Reasoning - Express Trust: 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 affected 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. | Detailed Reasoning - Application to you: When determining legal v beneficial ownership, our starting point, as noted in Taxation Ruling 93/32 is that the beneficial ownership of the Property is the same as the legal ownership. The onus then lies with the taxpayer to rebut this conclusion through evidence to the contrary. You are not beneficial owners of the Property. There is no formal trust deed in place in this situation to evidence that you retained beneficial ownership of the property. A written statement from Person C discusses the arrangements between himself and you. The letter was written several years after the Property was transferred to Person C and is therefore not considered to be contemporaneous. Evidence of any earlier oral declaration is required to substantiate the letter, which is an informal trust. You treat the Property as your home, and have: • lived in the Property with your three children since its purchase, including following the sale to Person C • contributed to mortgage payments, maintenance and repairs of the Property • stored your possessions at the Property at all times. Person C's Will provides you a life tenancy in the Property and your children are residual beneficiaries of the Property as tenants in common in equal shares. Person C has stated an intention that you would receive the funds for the Property if it was sold in the future during his lifetime. This does not establish beneficial ownership interest in the Property, which is different to the legal ownership. Legal entitlement to proceeds of sale does not prevent someone from giving those proceeds to another party. | Detailed Reasoning - In relation to Person C: We note that Person C is both the legal and beneficial owner of the whole property due to: • there being no contemporaneous evidence showing that he did not intend to hold any beneficial interest in the Property and that he merely held it on trust for you • his inclusion of the Property in his Will in which he gives his estate and his interest in the Property to his Trustee to hold on trust for sale but with power to postpone sale to allow you to live in the Property as their principal place of residence for life if you wish to do so • his bequeathing to his nephews and niece his own personal estate as well as his interest in the Property, or any property purchased in lieu of the Property, as tenants in common in equal shares. These facts contradict ownership by Persons A and B and indicate that Person C is both legal and beneficial owner of the Property. | Detailed Reasoning - Conclusion: The Commissioner considers that you are not the beneficial owners of the Property for the purposes of the Capital Gains Tax (CGT) provisions in the Income Tax Assessment Act 1997. We note that Person C is the owner of the Property and that the legal and beneficial interests are aligned. A letter of arrangement and agreement was provided by Person C regarding intention of the parties but is not contemporaneous. QC 25912 relates to trustee resolutions and the importance of contemporaneous documentation to the ATO, which is often relevant when distinguishing legal from beneficial ownership in trust contexts. | Detailed Reasoning - Issue 2: Capital Gains Tax - Main Residence exemption | Detailed Reasoning - Question 2: Will you be entitled to the main residence exemption under section 118-100 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to a future disposal of the Property? | Summary: Not applicable. | Detailed Reasoning - Detailed reasoning: Section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer can disregard a capital gain or capital loss made from a Capital Gains Tax (CGT) event that happens to a dwelling that is their main residence. To qualify for the full exemption, the dwelling must have been your main residence throughout your ownership period and must not have been used to produce assessable income. Subdivision 118-B of the ITAA 1997 provides that a capital gain or loss made from a CGT event which occurs in relation to a dwelling that is the main residence of a taxpayer is excluded from the operation of the CGT provisions. A capital gain or loss from a dwelling is disregarded if the taxpayer is an individual and the dwelling was the taxpayer 's main residence throughout the ownership period and the interest did not pass to the taxpayer as a beneficiary in, or as the trustee of, the estate of a deceased person. | Detailed Reasoning - Application to you: You and your three children have resided in the Property since its purchase and settlement in 198X and have occupied the Property as your main residence during this period. | Detailed Reasoning - Conclusion: As you are not the beneficial owners of the Property, if and when the Property is sold, CGT and the main residence exemption does not apply to you. | Detailed Reasoning - In relation to Person C: We note that Person C is a foreign resident and was not an Australian resident for tax purposes at any time during ownership of the Property. Foreign residents cannot claim the main residence exemption for property sold after 30 June 2020 unless they satisfy the requirements of the life events test. This applies even if you were a resident for some of the ownership period. Only foreign residents who sold property prior to 30 June 2020 may be eligible for the main residence exemption (refer to QC 66062). A foreign resident is excluded from claiming the main residence exemption for their property if they do not pass the Life Events Test, that is: • is a foreign resident for 6 years or less and during that time, one of the following occurred, • they, their spouse, or a child under 18 had a terminal medical condition • their spouse or child under 18 died • the CGT event happened due to a formal relationship breakdown. An excluded foreign resident is prevented from making any claim for the main residence exemption as stated in section 118-200(4c) ITAA 1997. An excluded foreign resident is someone who has been a foreign resident continuously for more than 6 years even if the Property had once been their home. However, in accordance with section 115-115(4)(d) of ITAA 1997, they can choose to: • obtain a market valuation of the property as at, 8 May 2012, and • apply the CGT discount only to the capital gain that accrued up to that date. Any capital gain made by Person C from the future sale of the Property cannot be disregarded and must be included in his income tax return in the relevant income year. As Person C was a foreign resident on 8 May 2012, he cannot reduce the capital gain by 50% even though he has held his interest in the Property for more than 12 months (refer to QC 66060). If the Property is sold, and in accordance with section 115-115(4)(d) of ITAA 1997, Person C can claim a partial CGT exemption. | Detailed Reasoning - Conclusion: We note that Person C obtained both legal and beneficial ownership of the Property on purchase and acquisition of title, therefore CGT event A1 will occur if and when the Property is disposed of.