ATO ID 2003/518: CGT: redescription of land boundary and issue of new title - does a CGT event occur?
Date of decision: 5 March 2003
Year of income: Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005
Business line: Small Business/Individual Taxpayers

Issue
Does CGT event A1, or any other CGT event, occur when the taxpayer surrenders the title to land granted under a State Act so that the State can issue a new title to the taxpayer in respect of the same land?

Decision
No. Neither CGT event A1 nor any other CGT event occurs when the taxpayer surrenders the title to land granted under a State Act so that the State can issue a new title to the taxpayer in respect of the same land.

Facts
To satisfy the requirements of relevant State legislation, the taxpayer surrendered their title to a piece of land that it owned. This was done to facilitate the issue of a fresh title to the taxpayer that more accurately described the boundaries of the land. It had become necessary to redefine the boundaries of the property to effectively exclude physical accretions to the land that had occurred over time. This adjacent land had accreted as a result of the placement of structures by previous owners which disrupted the natural tidal flow, causing sand to build up over time. Pursuant to the relevant State legislation, the ownership of such accretions of land vests in the State and not the owner of the adjacent property (the taxpayer). The only method provided for the correction of boundaries under the relevant State legislation, required the taxpayer to execute an ordinary deed of transfer of the land in favour of the State, to enable the State to cancel the existing title and to issue a new title to the taxpayer showing the correct boundaries.

Reasons for decision
Summary: The relevant State legislation provided that any land that had accreted to land owned by the taxpayer would belong to the State. Therefore, there was no issue of the taxpayer disposing of or causing any CGT event to occur in relation to the accreted land since it did not lawfully belong to the taxpayer. For the original land which did not arise from accretion, the taxpayer was indisputably the owner of it and although the State Law required that the title be 'surrendered' (to correct the boundaries), it is clear from the provisions that the surrender was only the first step in the process stipulated for boundary correction, with the State being obligated to issue a replacement title setting out the exact land already owned by the taxpayer. The surrender of the Title to the State did not have the effect that the taxpayer was no longer the owner of its land and the issue of a new title did not give devolve or confer any interest in the land upon the taxpayer. At all times the taxpayer retained beneficial ownership of the land. In the circumstances it is considered that a change of ownership of the land did not occur, in terms of paragraph 104-10(2)(a) of the ITAA 1997. Therefore, no CGT event A1 occurred under section 104-10 of the ITAA 1997. Furthermore, the circumstances of the transaction did not lead to any other CGT event occurring.

Legislative references: Income Tax Assessment Act 1997 section 104-5 section 104-10
Subject references: Capital gains tax Capital gains CGT replacement assets Centres of Expertise Capital Gains Tax CoE CGT events CGT event A1-disposal of a CGT asset CGT events J1-J3 - rollovers