Private ruling: CGT – disposal – beneficial entitlement
Date of advice: 10 April 2019
Published: May 2019
Ruling period: Year ended 30 June 2019 | Year ended 30 June 2020
Date scheme commenced: 1 July 2018

Ruling: Q1: Will you make a capital gain (or capital loss) upon the disposal of the property? | A1: No

Relevant facts and circumstances: In 19XX you were asked by M and D to be a guarantor on a loan to acquire a property (the property). M and D asked you to sign documents relating to the purchase of the property that you did not fully understand. M and D paid the deposit and have paid all loan repayments and expenses related to the property. You have made no financial contributions to the property. The property has been used as an investment property by M and D and M and D received all income from the property. You have never resided in the property. You have never considered yourself to have any beneficial interest in the property. You became aware that your name was on the property title as co-owner in the early 2000’s. There is no written agreement between you and M and D documenting the arrangement entered into. M and D have placed the property on the market for sale. You will not receive any proceeds from the sale of the property.

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 capital gains tax (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). 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 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. In your case, we accept that you were not the beneficial owner of the property. You have not lived in the property and used it as your main residence. You did not financially contribute to the purchase or upkeep of the property, nor were you a recipient of any rental income from the property. It is considered M and D are the beneficial owners of the property. Therefore, when the property is sold you will not make a capital gain (or loss).