Mr Gerbic was a generous father. He bought a town house for his
23 year old son but, concerned that his son needed financial
protection, he decided to purchase the house in their joint names.
The son lived in the property for five years and then sold it at a
substantial profit. Mr Gerbic allowed his son to receive all of the
As the property was the son's principal place of residence,
he was entitled to a full exemption from capital gains tax.
However, Mr Gerbic (senior) was assessed as liable for capital
gains tax on his own half share of the profit.
He objected on the basis that he was not really the owner of an
interest in the property - that his own interest was effectively
held on trust for his son. However, as he was unable to produce any
proof of the existence of a trust, his tax assessment was upheld in
the Administrative Appeals Tribunal (Taxation Appeals Division 2013
It is interesting to consider whether, if Mr Gerbic had his time
again, he would have done things differently. What risks was he
trying to avoid?
They might include:
the son running up substantial debts which force him to sell
the property; or
the son being exposed to a family law claim from his wife or de
However, if the son had become insolvent or his relationship
broken down, the father may have been less inclined to argue that
the son really was the beneficial owner of the whole property. The
father may have been happy to receive a capital gains tax
assessment if it kept half of the sale proceeds away from his
son's creditors or former spouse or partner.
The father's objectives may have been achieved had he lent
money to his son to complete the purchase and taken a security
interest against the property. In the event of a claim by the
son's creditors, the father could insist on repayment of his
loan in priority to the son's other creditors.
If the son were to become a party in family law proceedings, he
could perhaps argue that the value of his assets should be reduced
to take into account the debt owed to his father. However, there
would always be the risk that the Family Court would view the loan
as a loan in form only, but in reality a gift, because the father
had no intention of seeking repayment of the debt.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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