Tax Tip 265: And/or Nominee and CGT Issues

Discussion in 'Accounting & Tax' started by Terry_w, 13th Jan, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    18th Jun, 2015
    Australia wide
    It seems some people out there advise people to sign contracts with XX ‘and/or nominee’ so they can substitute a different person or entity to settle on the property. i.e. the contracting entity is different to the end ownership entity.

    This seems to be pretty popular in Victoria – possibly because of the stamp duty laws there. A contract can still be in one name with the settlement in another name even without the and/or nominee.

    This is a dangerous strategy for a number of reasons, one of which is CGT.

    What happens when this is done is that it triggers a CGT event C2, section 104-25 ITAA97. It could also be CGT event E2.

    A contract is a ‘bundle or rights’ – assigning those rights is the CGT as would be disposing of those rights.


    Homer acquires a development site in Victoria and negotiates a loan settlement. He starts the process of apply for subdivision approval and then nominates a company as trustee of a discretionary trust at settlement. The trustee becomes the owner of the property.

    Homer is up for a $100,000 capital gains tax event because the property was purchased for $500,000, but with the passage of time and the DA for subdivision it was worth $600,000 at settlement.

    Poor old Homer has to pay $25,000 in tax even though he received no money or benefit from the nomination.

    You might think if you have a 30 day settlement this would not matter. But it is still a CGT and you will still need to record it in your tax return incurring extra tax agent fees – and possibly run the risk of the ATO arguing there was a jump in price.

    For this and other reasons the contracting party should be the party that settles the property.
  2. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    18th Jun, 2015
    I wish I had $1 for the question "Can I sign as nominee and create a company / trust etc""....

    My stock standard answer is - IDK. Seek legal advice. I could then put $10:$1 on the next question.....But can I?

    And I cant recall a single instance where a solicitor then advised it would be OK to establish the company or trust sometime later.

    I cant and dont give legal advice and would have dire concerns with substituting a entity that didnt exist at the time of a contract being made. Only a solicitor should give this advice. Getting it wrong could be very very expensive incl income tax, CGT, GST and stamp duty issues.
    Pingu1988 likes this.

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