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Is the property, beneficially owned by person C? And can the main residence exemption apply to sale of the property?

No Question 2 Will the property result in a capital gain tax for yourself and person B when it is transferred to person C or sold to a third party? Answer Yes This ruling applies for the following periods : 30 June 20XX to 30 June 20XX The scheme commenced on: DDMMYYYY

On DDMMYYYY you and person B purchased 10 acres of vacant land. The loans and property titles are in person B and your names only. You purchased this land for person C and his partner person D to build a dwelling and then reside in it. Person C and D were unable to obtain a loan as person C had a new self-owned XXX business that had just started up and did not have the financial information at the time and person D had previously been bankrupt. In 20XX and early 20XX you and person B took out 2 loans: •         Loan one account XXXXXXX - to purchase the 10 acres of vacant land •         Loan two account XXXXXXX.X - to purchase a shed to be built on the land •         The approximate value in total being $XXX,XXX. Loan one to purchase the property was taken out on DDMMYYYY, and the property was purchased on DDMMYYYY for $XX,XXX. Loan two to purchase a shed was taken out on XX XXXX 20XX and the shed was purchased on DDMMYYYY. You set up an investment bank account (xxxx/xxxxx) in your name only so that person C could make payments into this account to be used to pay for the mortgage.

Repayments for the loans get automatically transferred from this account into the two loans for the land and shed. This account has not been used for any other purposes. In MMYYYY, you redrew from the loan account $XX,XXX in which you then transferred to person C's account. On XX, XX and DDMMYYYY, you again redrew from the loan account $XX,XXX all in separate $XX,XXX amounts two of these were on DDMMYYYY. On XX and XX XXX, you redrew from the loan account $XX,XXX and $X,XXX, and transferred these amounts to person C's account. On DDMMYYYY, you redrew from the loan account $X,XXX and transferred this amount to person C's account. A home quote was obtained by person C on DDMMYYYY. The first initial home deposit made on DDMMYYYY for $X,XXX GST included. The second home invoice was issued DDMMYYYY: •         Stage 1 Supply $XX,XXX GST •         Variation $-X,XXX GST •         Less initial deposit 5% $-X,xxx GST •         Less stage 1 deposit $-XX,XxX GST Payment due upon receipt of invoice. Total amount due for stage one $XX,XXX. The amount of the redraw of $XX,XXX is enough to cover this amount.

Further redraw advancements were made on the loan account and transferred to person C and these dates coincide with invoices provided. All other expenses including building of the house and maintenance etc was paid directly by person C. Since the land acquisition the property has been the primary residence for person C and their partner person D and continues to be their residence.

Income Tax Assessment Act 1997 section 102-20 Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 section 118-130

Issue 1 Question 1 Is the property, beneficially owned by person C? And can the main residence exemption apply to sale of the property? Answer No Summary The property was purchased in 20XX by your, and person B and the land title is held in both your names. You purchased the land so that person C and their partner person D could build a home and reside in it, Person C contributes to all the expenses of the property, however, there is no written form showing that the property was purchased beneficially for person C, the property is still held in your and person B's names. As the property is deemed not to be beneficially owned by person C, the main residence exemption cannot be claimed when the property is disposed of. Detailed reasoning Legal and 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. It was explained in Calverley v Green 56 ALR 483, Dean J said (at p 500):

'It is simply that there are certain relationships in which equity infers that any benefit which was provided for one party at the cost of the other has been so provided by way of "advancement" with the result that the prima facie position remains that the equitable interest is presumed to follow the legal estate and to be at home with the legal title or, in the words of Dixon CJ, McTiernan, Fullagar and Windeyer JJ in Martin v Martin (1959) 110 CLR 297 at 303, that there is an "absence of any reason for assuming that a trust arose".' Cases where the title includes the name of a person who is a nominee or trustee, must be decided on an individual basis on the evidence available to establish that fact. Authority can be found in Napier v Public Trustee ( Western Australia ) 32 ALR 153 where the court accepted there was sufficient evidence to establish that the equitable interest was different from the legal title. Aickin J said (at p 158):

'The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis) there is a presumption of advancement so that the beneficial as well as the legal interest will pass. Each of the presumptions may be rebutted by evidence.' We consider 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.

Any capital gain or loss should also be apportioned on the same basis as the rental income or loss. 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. As noted by Gibbs CJ, in Calverley v Green [1984] HCA 81:( Calverley v Green case). A trust is presumed in favour of the party providing the purchase money. If an individual purchases and then pays for a property, but legal title is transferred to another person at their direction, the presumption of a resulting trust arises - the property is held in trust for them. 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 others name. However, there are instances where this application may not apply, including:

•         where there is evidence of a specific intention to hold beneficial interest in the property for another person who contributed no amount, or a lesser amount, towards the purchase price. •         where the presumption of advancement applies •         where a court orders that property is held on trust (not relevant to your circumstances). 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. Presumption of advancement

The presumption of advancement is an equitable principle where a person puts property in the name of another person with whom they have a close familial relationship. The presumption only applies to transfers and purchases made by people who stand in particular relationships, including parents and their children. Under the presumption of advancement, the property is transferred with the intention of transferring both the beneficial interest in the property as well as the legal title. The parties hold their equitable interests in the property in the same proportions as their legal interests. In Calverley v Green , three important principals in relation to the presumption of advancement Gibb CJ found: •         Where one party purchases property in the name of the other, it will be presumed that the first party did not intend the other to take a beneficial interest unless there is such a relationship between the parties as gives rise to a presumption of advancement. •         The sort of relationship where the presumption will arise is where the relationship is such that it is more probably than not that a beneficial interest was intended to be conferred.

•         The presumption of advancement may be rebutted by evidence of the actual intention of the purchaser at the time of purchase. If two parties have contributed to the purchase and the legal interest does not reflect the proportions of their contributions, the intentions of both parties at the time of purchase are important. The onus of rebutting the presumption of advancement lies with the party who is considered as having gifted the property to another (usually the purchaser). Evidence is required that demonstrates that the purchaser did not intend the property to be a gift to the other party. In Commissioner of Taxation v Bosanac (No 7) the argument of a resulting trust versus the presumption of advancement was discussed at length. The court outlined the following principles: •         Although it is referred to as a presumption of advancement, the dominant approach in Australia is that it is strictly not a presumption. •         Rather it is a description of certain circumstances, being the existence of particular relationships, where the presumption of a resulting trust does not arise.

•         Generally, the court will look to the dealings, documents and communications at the time of the purchase to determine whether there was intention to retain a beneficial interest. However, evidence of the dealings between the parties after the time of purchase may be a relevant factor. Application to your circumstances On DDMMYYYY you and person B applied for a loan to purchase XX acres of vacant land for person C and person D to build a dwelling and reside in it. Person C had just started a new business, and his partner person D had previously been bankrupt, and they were unable to obtain a home loan to purchase the land, so you and person B decided to help them out and take out a loan to purchase the land. During 20XX and 20XX, you redrew advanced amounts from the loan and transferred them to person C's bank account and these amounts coincide with invoice dates and similar amounts. You have advised that person C has paid for all the expenses to maintain the property.

You have also advised that when person C wants to downsize that the property will be sold by your and person B and that you will retain the amount still owing on the loans and then give the excess proceeds to person C so that they can then purchase a smaller home. The documentation you have provided to support that the property was purchased for person C is inconclusive. There is no evidence of an intention at the time of purchase, that person C would be the beneficial owner of the property that would sufficiently demonstrate an express trust. There is also no evidence of a resulting trust. While the bank account statements show person C deposited money into your account, in relation to the property, the repayments of a loan are not contributions to the purchase price. This evidence is insufficient to support the assertion that person C contributed to the purchase price and does not support that your father had beneficial ownership interest in the property when it was acquired.

Although there is a parent-child relationship there is no evidence of a resulting trust, that is, there is no evidence that person C contributed to the purchase price, which would trigger the presumption of advancement. We note that if there had been evidence of a resulting trust there would be a requirement to consider the facts and evidence provided and, in your circumstances, there is also no documented evidence that would rebut the presumption of advancement. The evidence provided does not indicate that a trust has been created to show that the property was purchased on trust for person C. Question 2 Will the property result in a capital gain tax for yourself and person B when it is transferred to person C or sold to a third party? Summary You are considered to be both the legal and beneficial owner of the property and will be required to pay capital gains when the property is sold, or the land title transferred to Ross Atkinson in accordance with 102-20 Detailed reasoning

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 in which you have an ownership interest. 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 (2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you dispose of a CGT asset when you either enter into a contract for its disposal, or where no contract exists, when the change of ownership occurs. Section 104-10 (4) of the ITAA 1997 explains when you will make a capital gain or capital loss from the disposal of your CGT asset. Section 118-130 of the ITAA 1997 states that for a dwelling that you acquire under contract, you have an ownership interest in it from the time when you obtain legal ownership of it until your legal ownership interest in the dwelling ends. Application to your circumstances As person C was unable to obtain a home loan to purchase the property you and person B decided to take out a loan to buy the land for person C and person D to build a dwelling and reside in it

As you have not provided the Commissioner with sufficient evidence that person C had a beneficial ownership of the property when it was acquired, CGT event A1 will occur for you on your disposal of your interest under section 104-10 of the ITAA 1997, with both legal and beneficial interest having been held by your and person B, at all times. Any capital gain or loss you make from the removal of your names from the property title cannot be disregarded and must be included in your income tax returns in the relevant income year. As the property was held for over 12 months, there is a CGT discount of 50%, which means that you pay tax on half of the net capital gain on that asset.