Did a CGT event A1 occur for you when you transferred your legal ownership of the Property?
No. This ruling applies for the following period : Year ended 30 June 20YY The scheme commenced on: DD MM 20YY
You are the sole proprietor listed on the title for the Property. You intend to transfer the title of the property to your sibling. Your sibling has resided with dependants at the property since its purchase. Your sibling was a student with dependants at the time of the purchase and was unable to procure a mortgage to purchase the property. Prior to the purchase of the property the following emails were exchanged: • DD MM 20YY, your sibling to you advising of plans to inspect the property, there was an offer on it but countered with an offer, and had contacted a mortgage broker • DD MM 20YY, your sibling to a conveyancer with your contact information, name of the Real Estate Agency and the owners solicitor/conveyancer • DD MM 20YY, your sibling to you discussing interest rates and loan options with a financial institution in Australia • DD MM 20YY, your sibling to the Real Estate Agent informing the deposit had been transferred to the holding account. Correspondence, signed and dated DD MM 20YY from you to your sibling provided:
• you were providing assistance to your sibling to buy the property for your sibling and family to live in • your sibling identified the property at Address A to purchase • due to your sibling's financial situation and difficulty obtaining a mortgage you had agreed to help by purchasing, obtaining a mortgage and registering the property in your name • the property was to be, for all intent and purposes, your sibling's and your sibling could instruct you to deal with it as required, providing it did not create a significant liability etc to you • you did not expect to have any economic interests in the property or any liabilities with it • you would not claim any rights or interest in the property or proceeds of sale
• you could not, given your situation, take on the obligation of ongoing payments and maintenance on the property and were not in the position to pay the deposit or ongoing mortgage payments without income from the property and, therefore, your intent was to purchase the property and hold it in trust for your sibling was on the understanding that they would provide the deposit and make the required ongoing payments to cover the mortgage. A letter dated DD MM 20YY from your sibling to you acknowledged the arrangement and confirmed: • you would obtain the mortgage to purchase the property and hold it on your sibling's behalf • the property would be your sibling's primary place of residence • they would be responsible for paying all costs associated with the property (deposit, stamp duty, legal fees, mortgage repayments, taxes, insurance, maintenance and utilities) • your intention was to hold the property in trust for your sibling's benefit and you would not receive any economic gain from it.
The first page of the "Contract for the sale of land" dated DD MM 20YY contains your name and address in Country A as the purchaser, for vacant possession of the property, purchase price $XX with $XX deposit. Your sibling emailed you on DD MM 20YY instructing you of what action was required by you for settlement, such as, the bank requirements, certified documents for the conveyancer, mortgage papers to be signed, mortgage lenders insurance and insurance of the property, so your sibling could make an accurate calculation of costs. Your sibling said they were aiming for an early settlement on DD MM 20YY. Your sibling has been making payments since the purchase of the property in late 20YY and will continue to make payments for all expenses related to the property. These included the interest and principal repayments for the loan, pest and building inspection, deposit, stamp duty, balance to the vendor, legal and conveyancing fees, utilities, repairs, maintenance expenses, as well as land tax and council rates. The following documents were also included with your ruling application:
• State A Land Registry Title Search dated DD MM 20YY for the property in deposited plan XXX where you are recorded in the first schedule and covenant and mortgage to financial institution B are included in the second • State A Transfer without monetary consideration form for Torrens Title XX/XXX, includes you as transferor, and your sibling as transferee, where 100% share was transferred. The witness to the signatures is Solicitor A • State A Purchaser/Transferee Declaration, signed by your sibling for the dutiable value of $0.00 for the property, dated DD MM 20YY. You have not received any income or other financial benefit whatsoever from the property nor claimed any deductions relating to it.
Income Tax Assessment Act 1997 section 102-20 Income Tax Assessment Act 1997 section 104-10
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or capital 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. This 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. When you dispose of or sell an asset If you dispose of your ownership interest in an asset during an income year, such as property or shares, you need to work out your capital gain or loss for each asset. If you received no capital proceeds from a CGT event, you are taken to have received the market value of the CGT asset that is the subject of the event. The market value is worked out at the time of the event. You are required to obtain a market valuation when transferring property or shares between related parties, such as family members. Legal and beneficial ownership
The ATO considers that there are extremely limited circumstances where the legal and equitable (also referred to as 'beneficial') 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 equitable 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 equitable 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, 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 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. 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 the 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 on 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.' Any capital gain or loss should also be apportioned on the same basis as the rental income or loss. 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. Application to your circumstances You transferred your legal title to the property to your sibling. To determine if you have a beneficial interest in the Property the facts and circumstances surrounding the property's purchase are considered. We consider the intent of the parties when the property was purchased as well as evidence of the dealings between the parties initially and after purchase. To establish the property was held on trust, we require evidence from the time it was purchased. With the absence of a declaration of intention, an express trust cannot be held. You took out a home loan with the financial institution A and refinanced the loan with financial institution B in 20YY to assist your sibling's purchase the property because at that time your sibling was unable to secure a mortgage as they were a student with dependants.
The contemporaneous documents provided establish that the property was held on trust by you for your sibling, as the legal owner only, with no equitable ownership interest. You have not contributed any funds towards the property, you have no right to receive the proceeds of sale, you do not make decisions in relation to the property and you have not declared any rental income or claimed deductions relating to the property. In your case, the equitable interest and the legal interest in the property are different. As you merely hold the legal interest in the property and do not have any equitable ownership interest, CGT Event A1 will not occur upon transfer of the title to your sibling and you will not have any CGT consequences for the disposal of the legal interest.