ATO ID 2005/367: Capital Gains Tax: not in common ownership - plan of consolidation
Date of decision: 14 December 2005
Year of income: Year ended 30 June 2006
Business line: Public Groups and International

Issue
Will CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) happen when the title to land owned by a taxpayer is amalgamated under a 'not in common ownership' plan of consolidation with adjoining land owned by another entity?

Decision
No. CGT event A1 will not happen because, in these circumstances, there has been no change of ownership of the taxpayer's land (paragraph 104-10(2)(a) of the ITAA 1997).

Facts
The taxpayer acquired land before 20 September 1985. In the 2005-06 income year, the taxpayer and the owner of an adjoining property agreed to develop both properties together. Pursuant to the development agreement, the taxpayer and the owner of the other property obtained approval of a not in common ownership (NICO) plan of consolidation of the two properties. The NICO plan of consolidation was lodged with the Registrar of Titles who issued a NICO title for the lot as consolidated on the plan. On this new title the owners were described as the taxpayer 'as to the land formerly contained in Certificate of Title XX' and the other owner as 'to the land formerly contained in Certificate of Title YY'. The taxpayer wishes to know whether the issuing of a single NICO title covering both of the previous lots results in the taxpayer being taken to have acquired their land after 20 September 1985.

Reasons for decision
Summary: CGT event A1 happens if you dispose of a CGT asset (subsection 104-10(1) of the ITAA 1997). You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner (paragraph 104-10(2)(a) of the ITAA 1997). Generally, CGT event A1 will happen when the title to two properties owned by different entities is merged. This is because each co-owner acquires, as a result of the merger, an interest in the land previously owned by the other. However, a NICO title does not involve co-ownership of land in the generally understood sense (that is, a tenancy in common or joint tenancy). The NICO title recognises that each proprietor continues to own the land described in their previous title deed (though the NICO title requires both owners to agree to any subsequent transfer of any part of the land). In the circumstances, it is considered that there has been no change of ownership of the taxpayer's land. Therefore, CGT event A1 in section 104-10 of the ITAA 1997 has not happened and the land owned by the taxpayer before the issuing of the NICO title continues to be owned by the taxpayer after the issuing of the NICO title. This means the taxpayer will continue to be regarded as having acquired that land before 20 September 1985.

Legislative references: Income Tax Assessment Act 1997 section 104-10 subsection 104-10(1) paragraph 104-10(2)(a)
Subject references: Capital gains tax CGT events CGT event A1 - disposal of CGT asset