Opportunity to help family member get into the property market.

A child or grandchild may not qualify for a home loan in their own right, however the parents or grandparents don’t want to go guarantor, or want to ensure the child is able to make the commitment to purchase a property, but for their inability to gain finance in their own names.

The child may see the purchase of a duel dwelling residence as a good option, live in one, and rent the other, or rent out a second bedroom, however the bank may not take this into consideration for lending in their own individual right.

In time, the child is able to get finance, and or show the family they are committed and use the equity gained from the property increasing in value to gain finance, at which point the property is transferred to the child.

A recent private ruling confirmed an opportunity for parents or grandparents to assist other family members (i.e.) – (child or grandchild) getting into the property market. The ruling stated that the beneficial ownership was always that of the family member, as such the transfer of property title did not trigger a CGT event, as would normally be the case.

Conditions to satisfy to avoid triggering a CCT event

• The family member (i.e. – a child) had used their own money for the deposit
• And or the family member made all the mortgage repayments and holding costs, (i.e.) insurances, paid the rates, etc.
• The family member lived and treated the home always as their main residence since acquisition, and
• Taxpayer (i.e. – parents or grandparents) transferred the legal interest in the property to the family member when they were able to obtain sufficient finance

The Commissioner of Taxation determined that in this situation the taxpayer who originally purchased the property has not received a financial gain, and that beneficial ownership was always with the family member.

Beneficial ownership

A beneficial owner is defined per ATO TD 2017/11 as a person or entity who is entitled to the income and proceeds of an asset. That is, a person or entity may hold legal title of an asset on account for another person or entity.

Even though TD 2017/11 is written in relation to childrens’ bank accounts, the ATO applied the same theory when other property is held in trust.

Therefore, a CGT event doesn’t occur when the legal interest in the property is transferred from the taxpayer to the family member (ITAA 1997 s 104-10(2)).

In this instance, a “trust” was created when a taxpayer purchased a property for a family member until such time that they could obtain finance. The family member lived in the property as their main residence.

Love and Affection does not amount to beneficial ownership.

Various cases in the past have shown that the transfer of a property for “natural love and affection” has brought about a CGT event that was taxable to the transferor (Zeqaj and Commissioner of Taxation [2016] AATA 218).

Please note that these types of transactions have state tax implications such as stamp duty and/or first home owner’s grants.

© Garry Wolnarek & CCH