Private ruling: Capital gains tax
Published: February 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will you make a capital gain or loss as a result of the disposal of the property? | A1: Yes

Relevant facts and circumstances: X and Y (your parents) arrived in Australia. They applied for a visa to enable them to live in Australia permanently. X and Y wanted to purchase a home in Australia, but due to the restrictions relating to their visa application and residency status, they were prohibited from purchasing or owning certain types of property in Australia. They could not find a suitable property that they were allowed to purchase within their budget. They located a property (the property), however as they were not allowed to purchase the property it was purchased under your names. X and Y provided 100% of the funds to purchase the property. They occupied the property as their main residence and paid all occupancy expenses relating to the property. X and Y have both passed away. You are unable to locate X's will. Y's will was deemed invalid and Letters of Administration were therefore granted. You both remained on the title of the property until it was sold in the 2013-14 income year. The proceeds of the sale were distributed between the beneficiaries of Y's estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 100-20(1) | Income Tax Assessment Act 1997 Subsection 104-10(2)

Reasons for decision: Detailed Reasoning - Capital gains tax (CGT): You only make a capital gain or capital loss if a CGT event happens to an asset that you own (subsection 100-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997)). CGT event A1 happens if you dispose of a CGT asset. Subsection 104-10(2) of the ITAA 1997 provides that you dispose of a CGT asset if a change in ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you maintain beneficial ownership. In some cases, an entity may hold a legal ownership interest in property for another individual in trust. | Detailed Reasoning - Application to your circumstances: The property was acquired in your names, with money provided by X and Y, as X and Y's restrictions relating the their visa application process prohibited them from acquiring an ownership interest in a unit in an existing complex. It is considered that an 'interest' includes both a legal interest and an equitable interest. As their residency status prohibited X and Y from having a legal or equitable interest in the type of property in question, they could not be considered the beneficial owners of the asset for CGT purposes. We do not consider that you held the property on trust for them as this would have conferred an equitable interest in the property to X and Y. Accordingly, on the acquisition of the property, the only interest held in the property is held by you. As such, any change in ownership of the property will result in CGT event A1 happening and you will make a capital gain (or loss) on the disposal.