Private ruling: Legal v equitable ownership
Date of advice: 26 August 2025
Published: 27 October 2025
Ruling period: 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Will CGT event A1 happen when you transfer the legal interest in the Property to your sibling? | A1: Yes

Relevant facts and circumstances: Your accountant advised in the initial letter that the strategy to purchase both properties allowed the siblings to own their respective homes . On DD MM 20YY the financial institution provided you and your sibling with an offer for the Residential Investment Loan for $XXX valid until DD MM 20YY. On DD MM 20YY you and your sibling signed the financial institution loan application. The purpose of the loan was to purchase a property with a registered mortgage over said property. The financial institution's Home Loan Interview Guide (HLIG), conducted on DD MM 20YY, for the purchase of another property (Property B) provides details of Property A. • Why is the propped length of the loan term appropriate for the customers' needs? This is the siblings second home they own with Property A being an investment property. They now intend to move out of home and reside in the new property. Customers are hardworking people who hope to accumulate further investment properties later on. They like the stability that property gives them. They wish to use Property A as additional security for this loan to contain their LVR to within XX% as it is important to them to keep the costs for lending as low as possible. • Why is this product/feature the chosen option for the customer(s)? Current investment property is structured as a Loan and they wish to have a similar set up on the new lending. It is important to them that they pay no ongoing or annual fees for their lending. They do not wish to have any extras with the loan. They want a low interest no fee easy to manage loan. • Describe the reasons why the applicant/s want to be a co-borrower. Relationship - siblings Customers jointly own this property and their investment property at Property A. Both customers have equal share in the properties, and accordingly want both owners on the lending associated with the properties. The financial institution's letter of offer is addressed to you and your sibling for Property B, provides that security for the loan is registered mortgage over Property A given by you and your sibling. You and your sibling are named as the registered owners, as tenants in common, on the title for the two properties.

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

Reasons for decision: Summary: Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a CGT event occurring. The most common CGT event, event A1, occurs under section 104-10 of the ITAA 1997 when there is a change in ownership of a CGT asset. Accordingly, when applying the CGT provisions on the sale of property, ownership must be considered. It must be determined who had equitable ownership of the property. The legal owner of the property is recorded on the title deed for the property issued under that State's legislation. It is possible for legal ownership of property to differ from equitable ownership. An individual can be a legal owner but have no equitable ownership in an asset. Where equitable 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 equitable owner. An equitable owner is defined as a person or entity who is beneficially entitled to the asset. To establish occasions where legal and equitable ownership are not the same (i.e. a trust), there needs to be evidence to rebut the standard presumption that legal and equitable interests are the same. This evidence ordinarily includes: • contemporaneous documentation that clearly shows the parties' intentions at the time the property was purchased, and • documentation that clearly shows that the parties treated the property in accordance with those intentions during the ownership period. Gibbs CJ stated in Muschinski v. Dodds [1985] HCA 78 that the relevant principles included there being contemporaneous evidence: Where both transferees have contributed to the purchase money, the intentions of both are material, but where only one has provided the money it is his or her intention alone that has to be ascertained. The evidence admissible to establish the intention of the real purchaser will comprise 'the acts and declarations of the parties before or at the time of the purchase... or so immediately thereafter as to constitute a part of the transaction' ( Charles Marshall Pty Ltd v Grimsley [1956] HCA 28; (1956) 95 CLR 353 at 365) In relation to evidence of a trust arrangement, the following should also be noted: • contemporaneous evidence includes any documents such as emails, diary entries, bank documents, correspondence with third parties involved in the transaction, etc., that were created at the time of the property's purchase, • where there is little or no contemporaneous evidence of intention and the terms of an arrangement, formal documents prepared many years after a property was purchased will be of little probative value, and • the evidence must be unambiguous. In the absence of clear and compelling evidence to the contrary, the property is considered to be owned by the people registered on the title. Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners contains guidance on the issues involved where the equitable interest in a property may not follow the legal title. As stated in paragraph 41 of TR 93/32, the Commissioner 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. We will assume where taxpayers are related, e.g. husband and wife, that the equitable right is exactly the same as the legal title. Trusts may be of three kinds: express, constructive, or resulting. | Detailed Reasoning - Resulting or implied trusts: On the purchase of real property, a resulting trust may be presumed where the legal title that vests in one or more of the parties does not reflect the respective contributions of the parties to the purchase price. A resulting trust arises by operation of law and falls into two broad categories. One such category is where someone purchases property in the name of another ( Calverley v. Green [1984] HCA 81). If a resulting trust arises, the party, or parties, who hold the legal title is, or are, presumed to hold the property upon resulting trust in favour of those who contributed to its purchase cost. That is, the law presumes that the purchaser, as the person providing consideration for the purchase intended to retain the beneficial interest, although the legal interest is in the other's name. The presumption of resulting trust may be rebutted by: • a presumption of advancement that arises and is not rebutted, or • evidence of the contributors' common intention at the time of the property purchase contrary to the resulting trust arising: Calverley v. Green. However, there are instances where this application may not apply. This is where the property is transferred to the purchaser's immediate family such as a spouse or a child. In such circumstances, the presumption of a resulting trust is replaced by the 'presumption of advancement'. The rebuttable presumption of advancement deems the purchaser to have prima facie intended to advance the interests of the family members (i.e. an absolute gift). | Detailed Reasoning - Express Trust: An express trust is one intentionally created by the owner of property in order to confer a benefit upon another. It is created by 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, subject matter, and the object of the trust. While trusts can be created orally, all State Property Law Acts contain provisions that preclude the creation or transfer of interests in land except if evidenced in writing. | Detailed Reasoning - Constructive Trusts: A constructive trust is a trust imposed by operation of law, regardless of the intentions of the parties concerned. It applies whenever equity considers it unconscionable for the party holding title to the property in question to deny the interest claimed by another. The existence of a constructive trust is dependent upon the order of the court. | Detailed Reasoning - Application to your circumstances: In your case, there was no constructive trust. The other two types of trusts, require clear contemporaneous evidence in order to either establish that there was an express trust or to rebut the presumption of advancement such that a resulting trust may have arisen. You have not provided any contemporaneous evidence to support Property A was held on trust for your sibling. The evidence you have provided shows that both you and your sibling applied to a financial institution for a loan to purchase an investment property Property A. You are both named on the loan application and also on the title deed as tenants in common in equal shares. You are both responsible for the repayment of the loan and therefore we consider based on the evidence, you hold both the legal and equitable ownership in Property A. Capital Gains Implications When determining legal v equitable ownership, our starting point, as noted in TR 93/32 is that the equitable 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 and your sibling are both recorded as the borrowers, in the financial institution loan documents, and you are both registered on the title for Property A as tenants in common. Therefore, we consider that you hold an equal share in Property A with a legal and equitable interest in accordance with TR 93/32. For the purposes of section 108-7 of the ITAA 1997, your interest in Property A is treated as a separate CGT asset which is subject to a CGT event A1 unless it can be demonstrated that the property was held on trust for your sibling. We therefore conclude that you hold a legal and equitable ownership as an equal owner of the Property and consequently, if you transfer your legal ownership of Property A to your sibling you will have a CGT event A1. You may be entitled to a 50% CGT discount under Division 115 of the ITAA 1997 as you held your share of the property longer than 12 months, provided you meet the relevant criteria.