1 Will I be liable to pay CGT when I transfer my share of the ownership interest to person B, or if we sell the property?
1 Yes This ruling applies for the following period : 30 June 20XX The scheme commenced on: DDMMYY
You are a non-resident of Australia and have been since 19XX In 20XX you loaned Person B $XX to help purchase a property as Person B was experiencing some difficulties It was agreed to by yourself and Person B that this was a no interest loan, and that Person B would repay the loan in X instalments of $XX starting in MMYY You did not need to take out a personal loan to be able to lend Person B the money On DDMMYY a property was purchase for $XX The monies used to the purchase this property was: • $XX you loaned Person B • $XX Bank loan made Person B • $XX cash Person B When the property was purchased, upon Person C's insistence to protect your loan, you were added to the property title with an equal share as tenants in common No legal advice was sought prior loaning Person B the money to help purchase the property or at the time of purchasing the property Person B made a total of $XX repayment in X instalments between MMYY and the final repayment received by yourself on DDMMYY
A number of years later in 20XX, Person B made one final repayment of $XX to you and at this time, due to difficulties, you ended the loan with an amount outstanding of $XX During the period of ownership you have not contributed to the property in any way, your sister has made all the council payments Assumption You will transfer your ownership interest to Person B in the near future, or the property will be sold.
Income Tax Assessment Act 1997 section 102-20 Income Tax Assessment Act 1997 section 104-10 Income Tax Assessment Act 1997 section 118-130 Income Tax Assessment Act 1997 section 115-115
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 subsection 104-10 (2) of the Income Tax Assessment Act 1997 (ITAA 1997) 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. When you sell or dispose of an asset If you disposed of your ownership interest assets during the 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 as 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 equitable 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 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. We will assume where taxpayers are related, e.g., husband and wife, that the equitable right is exactly the same as the legal title. 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 (the presumption only applies to specific relationships and is not relevant to your circumstances) • where a court orders that property is held on trust (not relevant to your circumstances). Express trust An express trust is one intentionally created 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 On DDMMYY, you loaned your Person B $XX interest free to help them purchase a property
The purchase price of the property was $XX The rest of the funds to purchase the property, were paid by Person B in the form of cash and a bank loan of $X,xx You did not seek legal advice or enter into a formal written agreement/arrangement before or at the time purchasing the property. You name was added to property title as having a 50% ownership interest as tenants in common, this was done on insistence of your mother to protect the amount you lent to your sister to purchase the property You and Person B agreed that instalments of $XX per month commencing in MMYY, would be paid back to you Person B made a total amount of $XX over a number of instalments with you receiving the last instalment on DDMMYY X years later in 20XX Person B made a final $X repayment and you agreed to end the loan with an amount still owning of $X as you saw it as just a personal agreement and Person B was again having difficulties again All the expenses for the upkeep of the property has been paid for by Person B, and you have not contributed financially to the property since it was purchased, except for the amount you waived.
Documentation provided to support that the property was purchased for Person B is inconclusive. There is no evidence of an intention at the time of purchase that Person B would be the sole equitable/beneficial owner of the property and is insufficient to demonstrate that an express trust was created. There is insufficient evidence of a resulting trust. You contributed $XX towards the purchase price of the property and Person B contributed $XX. This was almost half of the purchase price and while it may have been at the insistence of Person C you agreed to be included on the land title to protect the amount you loaned to Person B and to guarantee that the loan was repaid. By doing this you not only obtained a legal interest but also an equitable ownership interest in the property. These facts do not support that Person B had a sole equitable/beneficial ownership interest in the property when it was acquired.
As you have not provided the Commissioner with sufficient evidence that you held your ownership share of the property on trust for Person B when it was acquired, A 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 equitable interest having been held by you at all times. Any capital gain or loss you make from the removal of your name 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, you may be eligible to a discount percentage under section 115-115 Foreign or temporary residents - property acquired before XX May 20XX.