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Does any Capital Gain which arises upon sale of the property need to be declared in the tax return of Individual A and Individual B as individuals and not their capacity as Trustees of the Family Trust?

Yes. This ruling applies for the following periods : Year ended 30 June 20YY Year ending 30 June 20YY The scheme commenced on: 1 July 20YY

The Family Trust was set up several years ago. The Family Trust is a discretionary Trust. The Family Trust is in writing. Settlor of the Family Trust is Individual X. The Trustees of the Family Trust are Individual A and Individual B. The beneficiaries of the Family Trust are Individual A and Individual B. The property was purchased a couple of years after the Trust was established (the Property). The trustees held a meeting after the accountant uncovered the issue. The trustees prepared a minute of a meeting to document the meeting in writing that the trustees were holding the Property in trust for the Family Trust. The minute was signed approximately MM after the meeting). Title Deed for the Property is in the name of Individual A and Individual A as joint tenants. You have provided a number of documents.

Income Tax Assessment Act 1997 section 102-20 Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 section 108-5

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. All assets acquired since CGT started (20 September 1985) are subject to CGT unless specifically excluded. The Property is a CGT asset. Section 104-10 of the ITAA 1997 describes the most common CGT event, being CGT event A1. CGT event A1 happens if there is a disposal of a CGT asset. 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 stop being the legal owner of the asset but continue to be its beneficial owner. When considering disposal of the property, the most important element in the application of the CGT provisions is ownership. It must be determined who had 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 beneficial ownership. An individual can be a legal owner but have no beneficial ownership in an asset. Where beneficial 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 beneficial owner. A beneficial owner is defined as a person or entity who is beneficially entitled to the asset. To prove that a different equitable interest exists, there must be evidence that a trust has been established - such that one party is taken merely to hold their interest in the property for the benefit of the other. Trusts may be of three kinds: express, constructive, or resulting. There are limited circumstances where the legal and equitable interests in an asset are not the same and there is sufficient evidence to establish that the equitable interest is different from the legal title. Express Trust

An express trust is one intentionally created by the owner of property 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. 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. 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. ( xxx v xxx ). 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. Application to your circumstances We have considered the intent of the parties when the Property was purchased as well as evidence of the dealings between the parties both initially and after purchase. In this case, no documentation was produced to establish that the Property was held on trust for the Family Trust from the time it was purchased. With the absence of a declaration of intention, an express trust cannot be held. With respect to a constructive trust, as there is no court order, it cannot be held that a constructive trust has arisen.

The Commissioner does not believe that there is a resulting trust relationship as all the deposit was paid by Individual A based on the facts. However, the presumption of a resulting trust is rebuttable where specific relationships exist. In this case, the fact the Property was registered in the names of Individual A and Individual B is a rebuttal of the presumption of the resulting trust. The Commissioner is basing the decision on the following: The Letter of Offer is addressed to and in the name of Individual A and Individual B and not as trustees for the Family Trust. The copy of the Title deed is in the names of Individual A and Individual B as joint tenants and not as trustee or held on trust for the Trust. No contemporaneous evidence to support the Property being owned by the Family Trust. The meeting minutes are dated but not signed until several months later, this is not contemporaneous evidence. Individual A and Individual B are the borrowers in the Bank Disbursement and Settlement Authority. The Family Trust's Trade account reported a number of withdrawals. The withdrawals were made to Individual A and do not state that this is a deposit for the purchase of the property.

Therefore, these statements are not sufficient evidence that the Family Trust paid the deposit for a home they were acquiring. We were told that it was a combination of Individual A, Individual B and the Family Trust's financial positions that were used in obtaining the finance for the property. We were not provided with any evidence that the Family Trust's financial position was taken into consideration for the loan. As Individual A and Individual B's financial information were used for the borrowing then it would appear that they are the legal and beneficial owners of the property. Therefore, when the Property is disposed of the CGT liability will be Individual A and Individual B's as the legal and beneficial owners of the property. Individual A and Individual B must declare any capital gain in their individual tax returns. The property is not held on trust by Individual A and Individual B as Trustees of the Family Trust.