Parent liable to CGT on half-share of townhouse

The AAT has affirmed the Commissioner's decision to assess a taxpayer on 50% of the net capital gain arising from the sale of a townhouse for the 2007–2008 income year. It did so on the basis that the interest in the townhouse was not held on trust for the taxpayer’s son, and the main residence exemption did not apply.

Background

The taxpayer purchased a townhouse in 2002 for his adult son to reside in and transferred the property to himself and his son as joint tenants. The taxpayer's son lived in the property until 2007 when he moved to another property. The townhouse was then sold and the entirety of the funds was used to reduce the mortgage on the new property. The taxpayer contended that he should not be subject to CGT on the sale of the townhouse because he had been a joint tenant only in order to protect his inexperienced son from selling the townhouse on a whim, and because the taxpayer had received no proceeds from the sale. He further contended that he held his interest in the townhouse in trust for his son, and failing that, that the main residence exemption should apply.

Decision

The AAT held that the taxpayer was deemed to have received the proceeds of the sale under s 103-10 of the ITAA 1997 because he made a decision to use the proceeds to reduce his son's debt. In relation to the trust argument, it held that there was neither a written declaration of trust, nor any words or conduct from which an intention to create a trust could be inferred. For completeness, the AAT also found that the facts did not support a finding of a constructive trust over the taxpayer's interest in the property. In addition, the AAT held that because the taxpayer did not reside in the townhouse himself, he was not eligible for the main residence exemption. In conclusion, the AAT held that as a joint tenant, the taxpayer was liable for 50% of the net capital gain.

Re Gerbic and FCT [2013] AATA 664, www.austlii.edu.au/au/cases/cth/AATA/2013/664.html.