The AAT has held that a taxpayer who was a joint tenant of a townhouse with his son (who lived there) did not hold his interest in the property on trust for his son, and so he was liable for CGT on disposal of his share of the property. Facts In April 2002, the taxpayer purchased a townhouse for his adult son to reside in. To guard against his son acting unwisely, he had the property transferred to himself and his son as joint tenants. His son lived in the townhouse until 2007, when he moved into another house, and in September 2007 the townhouse was sold and the proceeds of sale were used to reduce the son’s debt to the bank for the second house. The taxpayer was assessed for the 2008 income year for CGT on 50% of the net capital gain arising from the sale of the townhouse. He objected and then appealed to the AAT. Reasons for Decision The taxpayer claimed that:
- it was never his intention to profit from the sale of the townhouse, and that “he only went on the title to protect his ‘inexperienced’ son of 23 years from doing something ‘silly’ and selling the townhouse on a whim”; and
- he did not receive any of the proceeds of sale of the townhouse (as the entire net amount received went towards reduction of his son’s loan).
However, the AAT stated that these matters did not alter his liability as:
- for CGT purposes, a person is treated as having received money if it is applied as he or she directs; and
- to be eligible for the exemption in respect of his liability for CGT on disposal of his interest in the property, the taxpayer would have had to reside in the townhouse himself unless he held his 50% interest in the property as trustee for his son.
Was there an exemption as trustee? The CGT provisions do not apply to the legal owner of an asset if the legal owner held it on trust for another person and the other person was ‘absolutely entitled’ to that asset as against the trustee: refer S.106-50 of the ITAA 1997. However, in this case there was no written declaration of trust, and there was “an absence of words or conduct from which an intention to create a trust could be inferred”. Editor: The taxpayer said that, if he had known of his potential liability, he would have signed a trust deed declaring that he held his interest in the townhouse on behalf his son, but the AAT stated “That, of course, may have defeated the purpose of having the title in both names”. The taxpayer said he became a joint owner to prevent his son dealing with the property ‘on a whim’, but this evidence indicated an intention on the part of the taxpayer that his son should not have an absolute entitlement to the property, contrary to a trust as contemplated by the legislation. In addition, the facts did not support a finding of a ‘constructive trust’ of the taxpayer’s interest in the property for the benefit of his son:
- the taxpayer paid cash for the townhouse, his son did not contribute anything towards the purchase, and did not pay any money to the taxpayer towards his share;
- there was no evidence that his son paid anything in the nature of rent to the taxpayer; and
- although the son paid for most of the maintenance and recurring expenses associated with the property, such as council rates, body corporate levies, and electricity and telephone bills, the taxpayer also appears to have paid for improvements to the bathroom, and for a new hot water heater.
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