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1 Did CGT Event A1 occur when you disposed of your interest in the property (property A)?

No. Question 2 Did CGT Event A1 occur when the trustees for the deceased estate disposed of their interest in the property (property A)? Answer Yes. This ruling applies for the following period : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX

Your parent signed a contract to purchase a property A. The purchase price was $XXX,XXX with a scheduled settlement date on XX/XX/20XX. Your parent engaged you to assist with the tasks required for the settlement of property A. Your parent was the sole owner of property B at the time the contract was signed to purchase property A. Your parent intended to sell property B to finance the purchase of property A. A contract was signed to sell property B with a scheduled settlement date of XX/XX/20XX. Your parent required short term finance (a bridging loan) for the purchase of property A as the settlement for the sale of property B would be after the settlement on property A. You also loaned your parent $XXX,XXX towards the purchase of property A. The loan was recognised in your parent's Will. In 20XX, you instructed the solicitors that property A was to be purchased solely in your parent's name. The application to the bank for the bridging loan was solely in your parent's name. You agreed to be named on the bridging loan with your parent to secure the necessary finance to purchase property A as your parent could not secure a loan on her own.

On XX/XX/20XX you and your parent were offered a loan amount of $XXX,XXX from the bank for the purchase of property A. On XX/XX/20XX, you were made aware that the bank was insisting that for them to provide the bridging loan, you would need to be registered on the title of property A with your parent as tenants in common in equal shares. On XX/XX/20XX, in an email to the solicitor, you expressed concerns that your parent would be distraught if the settlement on property A on XX/XX/20XX did not go through. You reiterated that, although it was against your wishes, that your name needs to be included on the title, with your parent, to ensure the finance can be approved for the purchase of property A in time for the settlement. The settlement on property A went through on XX/XX/20XX with your parent's and your name on the title as tenants in common with an equal share.

On XX/XX/20XX, you sent a letter to the solicitor handling the purchase of property A. You expressed that it was against yours and your parent's wishes that your name needs to be included on the title. You stated that all this could have been avoided if they had notified you on XX/XX/20XX of the instructions from the bank. You asked what they will do now to remove your name from the title. You were reluctant to engage your current solicitor to pursue anything further as you were doubtful about the efficacy of their advice. You did not engage another solicitor to pursue the title issue further in 20XX due to additional time and cost you would incur, and you were reluctant to concern your parent with the legal matters taking in consideration their age and health. At the time, you feared your parent's life expectancy would be short, but turned out it was considerably longer. You considered legal action against the current solicitor but elected not to do so given perceived challenges associated with carrying out legal action against solicitors. The sale of property B settled on XX/XX/20XX and the bridging loan was discharged from the proceeds.

In XX/XX/20XX, you sought advice from another legal firm after the lessening of Covid-19 restrictions and consistent encouragement from your spouse. A Declaration of Trust was prepared and signed by both you and your parent, which explains that you have no legal interest or entitlement in property A. The inclusion of you on the title was to secure finance as your parent was on a pension and would not be approved as the only applicant. The Declaration of Trust noted that your parent as the beneficiary of the trust, paid for all outgoings associated with property A including utilities, maintenance, mortgage repayments and insurances. The Declaration of Trust also noted that as trustee, you, shall continue to hold your half share of the property for benefit of your parent. In the event of the sale of the property, your half interest will benefit the deceased or their estate. Prior to any sale, you agree to transfer and have any documents passed over to your parent as the sole proprietor of the property. The Declaration of Trust included that a clause would be added to your Will stating that, if your parent survives you, your half share of property A would be passed to your parent.

The email from the solicitor in XX/XX/20XX, also confirms that the application of the Declaration of Trust and the provision in your Will, would result in a substantial saving in stamp duty. You provided your Will which explains that in the event that you predecease your parent, your share in property A as tenants in common, equal shares with your parent, will pass to your parent. The Will of your parent dated XX/XX/20XX, includes a provision that you and your sibling shall be tenants in common with equal shares in the residue of your parent's estate. You recall your parent had a prior Will dated after 20XX which had different amounts provided for children as per the 20XX Will. You are unsure where this prior Will is located. You incurred land tax of $XXX in the 20XX year for property A. Your parent passed away on XX/XX/20XX. You and your sibling are joint executors of your parent's estate. Probate was granted to you and your sibling on XX/XX/20XX. A contract for the sale of property A was signed on XX/XX/20XX. The vendors are listed as you as vendor, and you and your sibling as joint executors for your parents' ownership interest.

Property A settlement date occurred on XX/XX/20XX which resulted in a capital gain.

Income Tax Assessment Act 1997 section 102-20 Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 section 118-195

Question 1 When considering the disposal of a property, the most important element in the application of CGT provisions is ownership. It must be determined who is the legal owner of the asset. The Commissioner is satisfied that a CGT A1 event did not occur when you disposed of your 50% interest in property A. Question 2 When considering the disposal of a property, the most important element in the application of CGT provisions is ownership. It must be determined who is the legal owner of the asset. The Commissioner is satisfied that a CGT A1 event occurred for the trustees of the deceased estate when they disposed of their 100% interest in property A. Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a CGT event occurring to a CGT asset that you have an ownership interest in. For this reason, it is important to establish who is the owner of a CGT asset at the time a CGT event occurs.

Under section 104-10 of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset. The disposal of a CGT asset takes place if a change of ownership occurs from the taxpayer to another entity, whether because of some act or event or by operation of law. Section 118-195 of the ITAA 1997 disregards capital gains and capital losses made from certain CGT events that happen in relation to a dwelling that was a deceased person's main residence and was not being used to produce assessable income just before they died or was acquired by the deceased before 20 September 1985. Any capital gain or loss on a dwelling acquired by an individual as a beneficiary of a deceased estate or by a trustee of a deceased estate is fully exempt if: (a) the dwelling was the deceased's main residence just before the deceased's death and was not then being used to produced assessable income, or it was a pre-CGT property of the deceased; and (b) the dwelling was disposed of within two years of the deceased's death, or it was, from the time of the deceased's death until the disposal, the main residence of: •         the deceased's spouse;

•         an individual who had a right to occupy the dwelling under the will; or •         a beneficiary. Legal and beneficial ownership 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. In some cases, it is possible for legal ownership to differ from beneficial ownership. A beneficial owner is a person or entity who is beneficially entitled to the income and proceeds from the asset. An individual may hold a legal ownership interest in a dwelling for another individual in trust. 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. 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 41 and 42, 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. Although the ruling deals with rental income or loss, it clarifies that the same approach applies to a capital gain or loss. A Declaration of Trust is a legal document that is drawn up when people buy property together and they wish to reflect the legal arrangements under which they will own, fund and sell property, and, most specifically, how the sale proceeds would be divided. It is also frequently used to confirm the extent of each person's equitable or beneficial interests in a property, meaning a person's share in a property that may not be reflected in the legal ownership of the same. It is a document that should be tailored to each party's needs and desires and therefore, needs to be carefully constructed to cover all relevant points.

Sometimes referred to as a Deed of Trust, a Declaration of Trust is often used to record trustee's interests in a settlement where the trust assets are an interest in the property concerned. Application to the circumstances Your parent entered a contract to purchase property A in 20XX. To finance the purchase of property A, your parent entered a contract to sell their main residence, property B. The settlement date of property A was on XX/XX/20XX. Property B had a settlement date of XX/XX/20XX. Due to property B settlement occurring after property A settlement date, your parent applied for a bridging loan. To assist with the financing of property A, you loaned your parent $XXX,XXX (which was recognised in your parent's will) and agreed to be named on the bridging loan jointly with your parent. You made it clear to the solicitor for the purchase of property A that your parent would be the only person named on the title of the property as this is replacing property B as their main residence.

On XX/XX/20XX the WBC offered you and your parent a loan. On XX/XX/20XX, you were notified that the bank was insisting that to provide the loan to both you and your parent, they required you both to be included on the title of property A. You reiterated that, against your wishes and to avoid distress for your parent, that your name needs to be included on the title to ensure the finance can be approved in time for the settlement. Sale settled on property A on XX/XX/20XX. Sale on property B settled on XX/XX/20XX. The bridging loan was discharged with the proceeds from the sale of property B. You sent an email to the solicitor representing the purchase of property A on XX/XX/20XX asking if there is anything they can do about not being included on the title of property A. You were reluctant to go ahead with the advice from the solicitor as you were not satisfied with the way they handled the process during the purchase of property A. You did not engage another legal firm to assist with the title matter in the coming years from 20XX until 20XX, due to the additional time and money you would incur. You were also reluctant to involve your parent due to their age and health at the time.

You sought legal advice from another solicitor in XX/XX/20XX due to Covid-19 restrictions lifting, your parent's life expectancy being considerably longer than expected and consistent encouragement from your spouse. As a result, a Declaration of Trust was prepared and signed by both you and your parent, which recognised the intention of you and your parent, that you had no beneficial interest in property A at any time holding your half share on trust for the benefit of your parent. Your parent passed away on XX/XX/20XX. You and your sibling were made executors of the deceased estate and entered a contract to sell property A, you as vendor for your interest and you and your sibling as trustees for your parents' interest, which settled on XX/XX/20XX.

Based on the facts, the Commissioner accepts that, although you and your parent were legal owners of property A, it was intended that you only help with securing the finance for purchasing the property and have no beneficial ownership. You made several attempts to not be added to the title, and made it clear at all times during the purchase process that you did not wish to be on the title. Although you incurred land tax for your legal interest in property A due to your name being on the title, you have stated that you believed this was an unavoidable consequence of being included on the title. Although the Declaration of Trust and your Will are non-contemporaneous, they are relevant as they are consistent with the contemporaneous correspondence provided regarding your intentions. The Declaration of Trust stipulated that if property A was to go for sale, your interest would be transferred over to your parent as sole owner, and your parent would be the beneficiary of your share.

Your Will included provisions to pass your ownership interest in property A to your parent should you predecease her, therefore becoming part of their deceased estate. Your solicitor has indicated there would be a substantial saving in stamp duty. Tax outcome for you in your personal capacity As per section 102-20 of the ITAA 1997, the Commissioner is satisfied that you did not make a capital gain because of an A1 event occurring on a CGT asset which you had a 50% legal interest in. As the facts you provided show that although your name was on the title for property A your actions show this was only for the full benefit of your parent when acquiring the asset. Tax outcome for you as the trustee of the deceased estate The trustees for the deceased estate are liable for CGT on the capital gain received for the 100% interest in property A.

As per section 118-195 of the ITAA 1997, the trustees for the deceased estate can disregard the capital gains made from the CGT event that happened in relation to the dwelling as this was the deceased's main residence before the deceased died, it was not used to produce assessable income and the disposal of the dwelling occurred within two years after the deceased's passing.