Beneficial ownership extends to real property
A taxpayer has learned that no capital gains tax event would occur on the transfer of real property from themselves to a family member.
A recent private binding ruling highlights that a beneficial ownership of an asset doesn’t solely relate to shares in a company or beneficiaries of trusts and can occur to real property owned by individuals. In the private binding ruling the:
- taxpayer purchased a property on behalf of a family member as they were unable to obtain finance at that time
- family member paid the deposit for the property and had made all mortgage repayments
- family member had lived in the property as their main residence since acquisition, and
- taxpayer 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 instance the taxpayer who originally purchased the property has not received a financial gain.
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.
“A person or entity may hold legal title of an asset on account for another person or entity — beneficial ownership of an asset doesn’t solely relate to shares in a company or beneficiaries of trusts, and can occur to real property owned by individuals.”
Beneficial ownership
A beneficial owner is defined per 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 children’s 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)).
Additional comments
It must be maintained here that a key element in this case was that the family member had used their own resources to hold beneficial ownership. If it could be proven that the taxpayer had used their own money for the deposit or made the mortgage repayments, a CGT event may occur.
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.
That being said, this ruling highlights an opportunity where parents or grandparents can assist family members in getting into the property market. Situations exist where an individual may be in a difficult lending position due to requirements of a financial institution. For example, subletting a second bedroom by a homeowner is not taken into consideration for lending purposes (or from a domestic partner not on the title).
Please note that in these types of transactions have state tax implications such as stamp duty and/or first home owners grants.
If you would like further information surrounding this type of arrangement, please do not hesitate to contact our office. We would be pleased to assist you further.
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@northadvisory.com.au
Norman Ruan
Accountant
T: 02 9984 7774
E: normanr@northadvisory.com.au
“In the case reviewed, although the legal interest was transferred, the beneficial owner was the family member who provided the funds and lived in the home — meaning no capital gain was taxable when ownership was transferred.”
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
Beneficial ownership can apply to real property, not just company shares or trust interests.
Even if the title deed lists a legal owner, beneficial entitlement might rest with another individual/entity — recognising this helps avoid incorrect assumptions about ownership and tax liability.
The beneficial owner, not necessarily the legal title holder, is the one subject to tax consequences on gains or losses.
When equitable interest outweighs nominal title, capital gains/losses follow the equitable interest — so correct identification is crucial at disposal or transfer time.
Legal title transfers alone don't always trigger CGT if beneficial ownership remains unchanged.
In cases where property is held on trust until a beneficiary obtains finance (or similar scenarios), tax liability may be deferred until beneficial ownership changes.
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Frequently Asked Questions
What does “beneficial ownership” of real property mean?
Beneficial ownership refers to the person who is actually entitled to the benefits (income, proceeds, occupancy) of a property, even if the legal title is held by someone else (e.g. a trustee or nominee).
Can beneficial ownership apply when property is recorded under someone else’s name?
Yes. If one person (or entity) holds legal title but another person paid the purchase price, holds beneficial entitlement, or is intended to receive the benefits, then beneficial ownership may lie with the latter, not with the legal owner.
What happens for tax (e.g. capital gains) when beneficial ownership is different from legal ownership?
For tax purposes, the beneficial owner is generally regarded as the person entitled to gains or losses on the property — so when beneficial ownership is transferred, that person bears the capital gain or loss, even if legal title changes.
Does transferring legal title automatically trigger a CGT event if beneficial ownership remains the same?
Not necessarily. If the transfer of legal title doesn’t change who benefits from the property (i.e. beneficial owner remains the same), a tax event (capital gain/loss) may not be triggered.
Why is this concept important for property owners in Australia?
Because legal title alone may not reflect who truly owns or benefits from a property — understanding beneficial ownership helps correctly determine tax obligations, entitlements, and rights when dealing with disposals, transfers, trusts or family property arrangements.
Can beneficial ownership apply to real property (not just shares or trusts)?
Yes — the article explains that beneficial ownership can extend to real property owned by individuals, not only company shares or trust structures
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